Bankrate.com: 3 Buyers’ Tips on Car Extended Warranties

July 9, 2010

Whether you buy a new car or used car from a dealer, you’ll surely be offered numerous extras, including a car extended warranty, before you sign the final contract.

A car extended warranty might be a benefit if you plan to keep your car beyond the original factory warranty period, but consumers still should be careful that they are dealing with a reputable company. Recent changes to the Service Contract Industry Council’s, or SCIC’s, Model Act should make it easier. The act is a template for a law to regulate extended warranties and combat scams. It’s been adopted in some form in 35 states.

Three common areas where consumers are scammed by less-than-scrupulous extended warranty providers have been addressed in these changes. The revised Model Act requires providers to give prospective car buyers a copy of the contract before the purchase. It also prohibits a provider from saying it’s affiliated with an automaker if it’s not and it makes the consumer’s rights clearer when canceling a car extended-warranty contract.

An extended warranty isn’t really a warranty at all. It’s actually a contract that provides repairs, maintenance or both on your car after the manufacturer’s car warranty expires. They can be purchased at the time you buy your new car or used car, or later on after you’ve owned it for a while. There are two types of car extended warranties: those sold by the automaker and those sold by third parties.

It’s the third-party car warranties that are so often offered by unscrupulous companies. Last year, the Federal Trade Commission issued a consumer alert, warning consumers of the possible issues. The SCIC, whose members include reputable third-party car warranty providers as well as the manufacturer-backed companies, hopes to combat these fly-by-night companies with its model legislation.

While consumers should shop with caution, car extended warranties can be a smart investment for those who plan to keep their cars beyond the three- to 10-year factory warranty, especially if the car has a less-than-stellar reliability record.

Here are three questions to ask before you buy:

Is this warranty being offered by the manufacturer or a third party? A dealer may offer both types of car extended warranties, so understand what you are buying. If it’s a manufacturer, you’ll likely pay more for the same coverage, but you’ll be assured factory-trained technicians will use original, not aftermarket, parts for the repair. If it’s a third party, make sure it’s a reputable company by looking at the SCIC’s membership page and contacting the Better Business Bureau or your state’s attorney general to see if there are complaints.
What is covered? Review the contract carefully before you make the purchase. Look for what is covered and excluded as well as any requirements for coverage. For example, some car extended warranties exclude certain components such as turbochargers, while others exclude repairs that are associated with certain situations such as overheating.
How are claims handled? Understand what the requirements are for the repair to be done. Some common restrictions include using certain repair facilities, waiting for authorization before the repair can be made, or paying upfront and submitting paperwork for reimbursement. Some car extended warranties require a per-visit deductible that covers several repairs in a single visit. Others have a per-repair deductible that is charged before each repair is made, even in a single visit. Understand how the process works and make sure any restrictions won’t make it too complicated for you to make a claim.

Buying a car extended warranty is really buying peace of mind that you won’t have to outlay a huge amount of cash for a large repair. To ensure you have that peace of mind, research your decision carefully before making the investment.

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