Monday, March 23, 2009

Frugal Maven Knows Cars - Extended Warranties

Most consumer magazines will advise you unequivocally to avoid extended warranties. There are some good reasons for this advice. Many extended warranty companies are fly-by-night and there is no chance you will ever make them pay. They promise things they'll never deliver and will drive you crazy in the process. That doesn't mean, though, that all extended warranties are bad. There are several reasons that a warranty may fit your needs. Here are some tips that may help you navigate the secondary warranty market:

  • Buying a pre-owned certified vehicle. Certification is an extension of the original warranty. Most manufacturers hew pretty closely to the original warranty coverage with the exception of squeaks and rattles and trim pieces. Dealers are required to be extremely strenuous when certifying a vehicle. Because the manufacturer has to eat the subsequent repairs after the sale, they keep dealers on a close leash. It is virtually impossible to skirt the requirements that a vehicle be in top condition with all safety issues repaired before the sale. This also means that rarely will a vehicle be severely damaged and then certified and sold. It is not worth the effort to try to slip it past the manufacturer, deal with disappointed customers, risk the franchise and lose the long-term business. Most certified cars come without a deductible also which is a really nice feature.
  • Buying an aftermarket extended warranty. Virtually every car sales venue offers some sort of warranty. Some are excellent. Some are really crap. The big established companies like Fidelity/JM&A offer a quality product that can easily pay for itself. That said, stay away from the following:
  1. Any warranty company that calls you claiming that your warranty is about to run out and they can offer to extend it. They will push you to make a decision by cutting the price if you do it right now. They will wear you out for nothing. Stay away!
  2. Any warranty company that sends you a postcard claiming the same thing. These postcards look like something that is coming from your manufacturer. They aren't. Throw them away.
  3. Any warranty that offers repairs at 50/50 reimbursement. You will fight tooth and nail with these companies and end up getting about $200 on a $1000 dollar bill.
  4. Any warranty that doesn't reimburse the repair shop with a credit card. This is strange, I know, but there are many warranties out there that reimburse on a check. This means that your car will have left the shop and the repair facility will being chasing their money around. At our place, we require payment from the customer if the warranty company won't pay at delivery with a credit card.
  5. Any powertrain only warranty unless it's free with the purchase of the car. Most extended warranty claims are for oil leaks, air conditioning failures, suspension issues and window motors and regulators. Engine replacements are pretty rare and powertrain only warranties will send you in circles trying to rebuild a maintenance history that suits them.
  • Make sure that the warranty will transfer to a new owner with a minimal fee. You'll want the warranty as a selling tool if you sell your vehicle. If you trade or sell and have never used your warranty, you may be entitled to a full or prorated reimbursement. Always check. This feels like free money when you get it back.
  • Tell the repair shop up front that you have an extended warranty. Companies are not really all about reimbursement if you've already done the repairs. They require an opportunity to inspect the vehicle whether they exercise it or not.

So there you have it. My exhausting extended warranty guide. I have personally put an extended warranty on all new and nearly new vehicles I've purchased in the last 10 years. Vehicles are so much more complex than they used to be. It only takes one a/c evaporator at $2500 to make you wish you had a warranty. If you are going to be keeping a car outside the warranty period, it may definitely pay to invest on the front end. It's like any other kind of insurance--some you need and some you don't and with the exception of those kinds required by law, only you can decide. I hope this helps you choose well.


Treehouse Chef said...

Frugal Maven, Thank you! This was excellent info. I will need this very soon as Gracie is on her last leg and a trip to the dealership is just around the corner.

Post a Comment

Tell me something--anything! Let's have a conversation.