Do You Need an Extended Warranty?
Research extended warranties before heading to the dealership to buy a car.
Manufacturer-backed warranties are the smarter choice.
You can purchase an extended warranty anytime before the original warranty expires.
Sitting in a dealership's business office as you sign off on your new-car purchase is not the time to be wondering, "Do I need an extended warranty?"
Most car negotiations tend to wear down the consumer. By the time the salesperson walks a buyer into the business manager's office -- often called the F&I manager for "finance" and "insurance" -- that buyer may have already spent up to two or three hours with the salesperson, hearing a sales pitch, test driving some cars and hammering out a deal involving the new-car purchase price, as well as the value for a trade-in vehicle. This is just one reason we believe you should separate the shopping and buying visits to your dealership.
Mistakenly believing the heavy lifting of decision making is done when the salesperson turns them over to the F&I manager, some unsuspecting consumers might feel overwhelmed when suddenly faced with a grocery list of add-ons. These extra-cost products and services can include everything from window tinting and fabric protection for the seats to gap insurance and extended warranties.
The reality is that the F&I manager is another salesperson. Part of his job is to sell these additional products and services, which help bolster the dealership's profit on the car.
Arming yourself with some research on those extras before heading to the dealership to buy will not only save you some money but will also keep you from regretting decisions you had to make on the fly.
Among the buying decisions you will have to make in the F&I office, an extended warranty is one of the more complicated and expensive.
Here's what you need to know, what you need to ask yourself and what you need to find out about extended warranties before going to the dealership:
What is an extended warranty?
An extended warranty is really a service contract. It covers the cost of specified repairs after the car's manufacturer warranty expires. Think of it as medical insurance for your car. Some extended warranties are more comprehensive than others. Some have deductibles, while others don't.
Who backs it?
Extended warranties consist of two basic types: manufacturer backed and third party. Manufacturer-backed extended warranties provide for repairs to be made in any franchised dealership by factory-trained technicians using factory parts. The dealership's service writer can usually approve extended warranty repairs without a drawn out approval process. In other words, while it may differ in what it covers, it's basically an extension of the manufacturer warranty that came with the car.
A third-party extended warranty is underwritten by a company other than the manufacturer. It may or may not pay for work to be done at a franchised dealership. It will probably require the repair shop to secure approval from the warranty company before doing the work. It may require the owner to pay for the repair work then submit the bill to the warranty company for reimbursement. Third-party warranty companies can go bankrupt, taking the owners' money and leaving them without coverage.
If there is a deductible, what kind and how much is it?
Some extended warranties have a deductible. These can be either per-visit or per-repair deductibles. The ideal warranty would carry no deductible at all; however, if to keep the initial cost of the warranty low you accept a deductible, steer clear of per-repair deductibles. A warranty company could charge you a deductible for every part repaired or replaced even if they are related to the same problem that is fixed in a single service visit.
Who can make the covered repairs?
Make sure an extended warranty doesn't lock you into having the warranty work performed at a particular repair facility or the service department of a particular dealership. If you are away from home when trouble hits, you need to be able to take your car to a close-by repair shop or dealership. Manufacturer-backed warranties cover work done at any authorized franchised dealership.
Exactly what is covered?
Make sure items most likely to fail, break or wear out are covered: anti-lock brakes, electrical systems, transmission, manual-transmission clutches, air conditioner and power-steering components. Read the contract's fine print to determine exactly what is included and what is excluded.
Different levels of warranty often are offered with coverage increasing with each bump in price.
Who pays the bill?
Some warranties require the owner to pay for the repair and submit a receipt to the warranty company for reimbursement. This can take weeks or even months. There are plenty of warranties out there that directly pay the shop, requiring no out-of-pocket payment from you. Never buy an extended warranty that doesn't pay the repair shop directly.
Do you really need an extended warranty?
Different warranties cover different repairs, but basically an extended warranty kicks in after the manufacturer's warranty expires. At the core of the "need" question is how long do you plan to keep the car? If you trade-in a car every two or three years, chances are the warranty that came with the car will still be in force. If you keep a car for five years or longer, an extended warranty may pay for itself.
When is the best time to buy an extended warranty?
As with most products and services offered in the F&I office, an extended warranty doesn't have to be purchased when you buy the car. In fact, you can usually buy a warranty any time before the car's manufacturer warranty expires. Moreover, you don't have to buy it from the dealership where you purchased the car. The only advantage to buying it as part of a new-car purchase is that you can roll it into the financing and monthly payments. This means you will wind up paying more for it over the long haul, but you don't have to pay one lump sum.
Have you shopped around?
When it comes to buying a new car, everything is negotiable. This includes the cost of an extended warranty. Call the F&I office of a few dealerships offering the model you are going to buy and find out their lowest price for the warranty you are considering. Know that the first price they quote will probably be twice what it costs them. Dicker with them for a lowest price. Use that price to bargain with the dealer where you finally purchase the car.
What do we recommend?
Consumer Reports magazine says that on average consumers spend more on an extended warranty than the warranty saves them in repairs. So chances are, you probably don't need one. But if you really want an extended warranty for extra peace of mind, we prefer one backed by the automaker. Make sure it covers every component you want covered. Avoid a deductible, if possible.
What it means to you.
Do you need an extended warranty? For a consumer keeping a car beyond the limits of the warranty that came with the car, an extended warranty can provide some peace of mind even if it probably won't pay for itself. But extended warranties are only valuable if sensibly priced and comprehensive in coverage.
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