Why Not Buy an Extended Car Warranty From a Dealer?

An extended car warranty is actually a contract that guarantees payment for future car repairs, according to the Federal Trade Commission, and it is sold through car dealerships and independent companies. The finance representative at most dealerships pitches an extended warranty when you finalize your vehicle purchase because it is a high-profit item. This coverage is beneficial under some circumstances, but it is often unnecessary.

Coverage

Some dealers offer manufacturer-backed extended warranties, while others offer policies from independent companies. Tara Baukus Mello of Bankrate.com warns that independent insurers can go out of business (rendering your coverage useless), or insist on substandard parts for repairs. Do not opt for a warranty from a dealer unless it is directly affiliated with the car manufacturer.

Time Frame

Extended warranties run for a set number of years, extending beyond your vehicle's basic coverage. Consumers' Checkbook advises not to buy a dealer's warranty if you are not planning to keep the vehicle for very long after its included coverage runs out, or if you do not intend to keep it for the entire period covered by an extended warranty. You can get some money back if you sell the car before the warranty expires, but it is generally a small, pro-rated amount.

Anticipated Need

Not all cars are likely to need the extended warranty coverage sold by dealers. Some vehicles have many accessories (such as power locks, windows and seats, fancy stereo systems and electronic components) that are expensive to repair if they fail, and certain models have sub-par repair records. You do not need a warranty if your car has a good track record and is a very basic model. The coverage might be worthwhile if it has a bad repair history or is loaded with accessories.

Cost

Weigh the cost of a dealer's extended warranty offer against your own finances. Sometimes it makes more sense to set aside the money that you would use to pay for the policy and keep it in a car repair fund. Use it to pay for future problems directly and save yourself the worry about making claims through a warranty company.

Warning

Unscrupulous companies may try to trick you into thinking that their phone calls or mailers are from your car dealer, according to Herb Weisbaum of MSNBC Consumer. Beware of the entities that are not affiliated with your car dealer and want to sell you overpriced coverage without fully disclosing the terms. Be cautious of calls or postcards claiming that your current warranty coverage is expiring, because the senders are just trying to lure you into buying their policies. Throw out such mailers and report warranty-related calls if your phone number is on the "National Do Not Call Registry."

References

• Federal Trade Commission; How to Steer Clear of Auto Warranty Scams; September 2009
• Consumers' Checkbook: Automobile Extended Service Contracts
• MSNBC Consumer Man; Auto Warranty Firms Launch Sleazy Scam; Herb Weisbaum; February 2008
• Bankrate.com; 3 Buyers' Tips on Car Extended Warranties; Tara Baukus Mello; July 2010