Pros and Cons of Extended Warranties
If you’re planning on buying a new or used car from a dealership, they’re going to pressure you to purchase and extended warranty for the vehicle. These are also known as service contracts and the reason the dealer wants you to buy one is because good profits come back to the dealership.
What is an Extended Warranty?
A basic extended warranty is essentially nothing more than a service contract. It is an agreement between you and that dealership that provides a wide range of services if the conditions are right. It includes specific repairs over a specific amount of time that are paid for by the extended warranty provider.
Provisions and Providers
If you are planning on purchasing an extended warranty, be aware that quality and provisions will differ greatly from one provider to another. Some extended warranties are provided by the vehicle’s manufacturer, who always stands behind their product and the agreement. Other providers are fraudulent and just when you need them they disappear from the face of the Earth. These are usually found in places where consumer laws are weak or don’t exist. These fraudulent providers sell extended warranties to clients and then disappear before any claims can be made.
If you are purchasing an extended warranty, examine the contract thoroughly and read the fine print.
Are Extended Warranties Economical?
Dealers pay very little, if anything, for extended warranties and then sell them to consumers for hundreds or thousands of dollars. The only way an extended warranty will benefit you, is if you know for a fact that you will still own the vehicle when the manufacturer’s warranty expires. Today, manufacturers are giving long-term warranties. Unless you plan on keeping the vehicle for at least ten years, purchasing an extended warranty just doesn’t make sense. It’s just not economical.
Reading the Contract
Read the contract carefully and make certain that the extended and manufacturers warranties have no overlap. Why? Because you can’t put in a claim on an extended warranty if the manufacturer’s warranty is still in effect. The manufacturer’s warranty has to expire before you can make a claim to the extended warranty. In this case if you buy a five year extended warranty and the vehicle manufacturer’s warranty is five years or 50,000 miles, unless the miles are used up before the five years pass, both warranties will expire at exactly the same time.
Extended Warranty for Used Vehicles
If the vehicle you’re buying is used, it makes more sense to purchase an extended warranty. Manufacturers seldom offer a warranty on a used vehicle. However, use caution here as well. Be sure to read the extended warranty contract carefully and read it several times. Read the fine print with an eagle eye. Be sure you understand every word, or you could find yourself duped. The extended warranty needs to cover the power train, brake system, air bags, electrical, computer and transmission. Then and only then and if the extended warranty is reasonably priced, take a chance on it.