Make An Informed Decision When Buying An Extended Service Plan

Hey, we’ve all heard the stories. A friend buys the car of their dreams. Sacrificing their savings for pure luxury and a dependable ride. Then just a few months after buying “their baby”, the transmission goes out and in a panic they dial the 800 number for the extended warranty they just bought with the car. It seems in the meantime, they’ve gone out of business and now all you have is some worthless paper with nothing but a broken promise. . . And still, a broken transmission.

You cry to the dealership, they sold you on the company and they should do the right thing, but they shake their heads – although they are sorry, there is nothing they can do. They were as shocked as you were when ABC Warranties went belly-up.  While you know they are telling you the truth, you blame the dealership and honestly, they know if they don’t help you out they are going to lose a customer, but times are tight. The sales manager looks at you with empathic eyes as he shows you the door. You’d like to punch him in the nose!

When a warranty/extended service company goes bankrupt, it benefits no one. The customer blames the dealership and the dealership is left with egg on its face and more than likely, without the promise of return business. It’s not a risk most dealerships are willing to take and while there are some great deals to extend to customers seeking a low price warranty – It’s to everyone’s detriment when that warranty can’t be redeemed.

And while the term extended warranty may actually be a misnomer (this would mean an extension to the manufacturers warranty), the service contract you have entered into deserves to be fulfilled. Below are some of the key features you may want to make sure are true of the “warranty” you are being presented from your local used car lot.

  • Who is behind the warranty that you’re considering? As we eluded to above, many a service contract company has gone out of business, and taken your hard earned money with it. Make sure you know the record of the company. A long established record should be the first thing you research.  If they just sprung up last year, you may want to pass. Also, a big industry name can bear weight but be aware of that company’s overall solvency – Anyone remember AMC? Jus’ sayin’!
  • Is your vehicle already under manufacturers warranty, and is the coverage you are purchasing in “sync” with your plans for using it? If the car you’ve just bought is newer, you might want to double check the manufacturer’s terms of coverage. Most times these warranties are transferable and there is no reason to “double up”. Also, if you know you drive less than 10,000 miles per year, does that three year 36,000 warranty really suit your needs or are you overpaying. Conversely, if you drive 15-20,000 miles per year that three year warranty, just became a two year warranty. One other thought is to make sure you buy a plan that is long enough, that once the vehicle has fulfilled your needs, you may still have six months of warranty left on it. This is a great selling point when you go to re-list your vehicle. Just make sure the service plan you are buying is transferable and this could create the easiest vehicle sale you ever listed.
  • What’s the reliability record of the vehicle you are buying? This is by no means a catch-all, but if you know the vehicle you are buying has the best record in the industry for not having to see the inside of a shop, this might be reason enough to overlook a service plan. That said, if the vehicle has been previously wrecked, all bets are off. You should take a look at further protection, if not solely for peace of mind.
  • What’s the nature of its deductible? Does the service plan offer a reasonable deductible, or is it valued as highly as the average repair? If so, that $2,000 you are paying upfront may be better saved for a rainy day.
  • Is the warranty transferable? Some extended warranties end when the person who bought the warranty sells the car. A warranty that allows you to transfer it to a new buyer is preferable; it’s an excellent selling point for prospective buyers.
  • Where can you get the car serviced? Some service plans severely limit your ability to get your car serviced. Make sure your warranty can be used anywhere you may end up. Imagine being on vacation somewhere and the worst happens, thinking your covered you head to the nearest shop, only to find your warranty only applies in your home state.
  • What exactly is covered? Many service plans can cover your car from bumper to bumper, others… Not so much. Make sure you know what your buying coverage for, not simply the coverage terms (mileage and years).

You should definitely compare all your options before making a decision on a service contract. Do your own research, get a ballpark idea of what an extended warranty with your desired features should cost. In buying a warranty, as in so many other aspects of life, it helps to be fully informed.