Automotive

A Syndicated Column By Michael Lazar

Things You Didn’t Know About an Extended Auto Warranty That You Really Should

Things You Didn’t Know About an Extended Auto Warranty That You Really Should

 

Most of us have been there, and at some point any person purchasing a new or used car will be: where you decide if it makes sense to buy an extended auto warranty.

 

For most of you, this situation will happen at an auto dealership. It’s pretty cut and dry, too.


If you’ve bought a new car, it already comes with a certain miles-based warranty that can be extended for a lofty price to add more miles and additional coverage that kicks in after the manufacturer’s bumper-to-bumper warranty has expired. On most used cars, you can buy these warranties as well, which serve to add additional coverages and protections to either the lapsing original warranty or to add a warranty if there is none.

 

Before we dig in, let’s make one point clear: an extended warranty is not really a warranty.


Rather, it’s a mechanical breakdown insurance. It helps protect you against the high out-of-pocket costs associated with many common repairs, good over a set and predefined period of time and mileage, whichever comes first. In essence, warranties such as these are really glorified service and repair contracts.

 

They are not all bad. In fact, many are wonderful. Will they make sense for your next purchase?

 

Read on to learn more.

 

Types of Extended Auto Warranties


There are two different kinds of auto warranties: ones that come with a new car purchase or a certified used car purchase that still has the original warranty intact (these are simply called Original Equipment Manufacturers or OEMs for short); or ones you buy after the purchase from a third-party services provider.

 

For clarity, an OEM warranty would be something that comes with a brand-new car and is offered by the carmaker. An extended warranty would be one that you purchase from a third-party provider to extend the OEM warranty coverage via a “service contract.”  

 

Now that we have that cleared up, let’s move on.

 

Manufacturer Warranties

 

Every new car comes with an OEM warranty of some type. The most common is for three years and 36,000 miles, also called a 3/36. They are often also referred to as “bumper-to-bumper” warranties because they basically cover every single part in the car, with exception to certain wear and tear items such as brake pads, hoses, belts etc. In many cases, they are referred to as “limited warranties” because there are limitations on the application of them, and they only cover breakage and malfunction due to manufacturer defect and not owner malfeasance or neglect (like not changing the oil).


Most offer roadside service or assistance. And many even offer rental car assistance and trip interruption insurance, should your new car breakdown while you are on a road trip, vacation or business excursion. Many have certain deductibles that must be met, with the most common out-of-pocket expense averaging about $200.

 

Third-Party Warranties

 

In addition to the OEM warranty, there are options for third-party extended auto warranties. Most commonly, you will be presented with options to finance these or buy them outright at the finance office of the car dealership you are using.

 

Third-party warranties have some pros and cons. For one, they can add additional years and mileage protections to your existing warranty on a new or used vehicle. But you want to make sure you read the fine print and know what you are buying first.  

 

For example, some warranties have high deductibles and limit where you can have your car repaired. Others may not require that OEM parts be used in the repair. Some may require that you pay the initial repair fees out-of-pocket and then submit a claim form for reimbursement.

 

If you plan on purchasing an extended auto warranty, make sure you conduct due diligence first:

  • Research what is covered and what isn’t.

  • Assure that you can have you can use shop or dealer of your choice.

  • Make sure the parts and service coverage is ample with a minimal or no deductible.

  • Ensure that you don’t have to submit claim forms and pay upfront only to wait for reimbursement from the company.

 

Things to Ask Yourself Before Buying

 

You will want to ponder a few important questions before you buy an extended auto warranty.

 

How long do you plan to keep the vehicle? If the car only comes with a 36,000-mile OEM warranty and you plan on trading it in within the next three years, then it won’t make much sense to buy a warranty you won’t use before the OEM one expires. In this case, the OEM plan would offer ample protection until you trade the car in for a new one that comes with a fresh warranty.

 

How much protection do you need? If you don’t drive your car much, then an extended warranty may not be viable. If the original manufacturer warranty covers you for, say, 50,000 miles and you only drive 5,000 miles or so a year, you’d not get your money’s worth from the investment.


What does the warranty cover? Most importantly, what does the warranty cover and what is the deductible? Compare high-price repairs, like electrical, radiator, drivetrain and others to the protection that’s being offered and its aggregate repair cost. In some cases, you may find it lucrative to add this valuable protection. In others, you may be just fine with the OEM warranty.

 

Can you cancel or reassign the warranty? Some states allow you to cancel a warranty and get a prorated refund, should you sell your car before it expires. Others do not. Some warranties let you transfer it over to a new owner. Make sure you are aware of your options here, because if you can’t include the warranty when you sell the car, or cancel it if you need to, it’s less attractive than if you could.  

 

Parting Advice

 

An extended auto warranty is viable in many situations. But in some cases, it may not make sense. By determining your driving patterns, usage of the vehicle and repair costs against the value added by such a service plan, you can deduce if it makes sense for your situation.

 

According to theFederal Trade Commission, you don’t have to buy these warranties with a new car, either: “If the dealer tells you that you have to buy a service contract to qualify for financing, contact the lender to find out if this is true.”

 

However, without one in place, you may find yourself up the creek with a paddle for costly repairs once your OEM warranty expires. In the situation of buying a used car with no OEM warranty, an extended warranty usually makes sense.


By and far, make sure you do your research beforehand. This way, you can find the right plan with the right coverage, and most importantly, at the right price... before you sign any contracts.