So you just shook hands on your new or used vehicle purchase. Chances are you have been at the dealership anywhere from 2 to 5 hours. You are thinking let's just whip thru this paperwork and let me start busting some bugs in this baby. Whoa there Jimmy Johnson the fun is just beginning. First there is no "just whip thru the paperwork". Other than a home purchase this may be the most paperwork you sign in youth life. Secondly the buisness or finance office is a major profit center for most dealerships. This is where the "back end" profit is made. With shrinking profit margins and competitive pricing this is the area that dealerships will push to make up for lost profit on the "front end". There are numerous "back end" products that can be presented to you which will be covered in future articles. This article will concentrate on the high dollar one, the extended warranty.
Extended warranties, extended protection plans, and service contracts are all the same leopard, just with different color spots. In general they offer you the opportunity to extend the original manufacture'rs warranty on a new or used vehicle or they allow you to place a warranty on a vehicle when the original warranty has expired. The coverage they provide will depend on components covered, length of time covered and total mileage covered. You will usually be offered a comprehensive or full coverage option first as this has the biggest profit margin. If you do not bite on this. Then a major components or power train warranty will be served up next. Comprehensive should mean just that. It should pretty much cover everything except for routine maintenance (oil changes, tire rotations, etc.) and wear items (brake pads, wiper blades, etc.). The power train or major components warranty will usually cover engine, transmission and drive shaft and little else.
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Since most of you are only going to go thru this process a few times in your life you are going in unprepared and uninformed. Here is a list of the most common mistakes made:
1. Buying a after market warranty when a manufactures plan was available.
2. Not understanding what is covered and what is not.
3. Not knowing what the terms "per visit" and "per occurance" mean.
4. Not understanding where the warranty can and can't be used.
5. Not realizing what the deductible is and how it comes into play.
6. Not knowing what remains on the original manufactures warranty.
You will be way ahead of the game and avoid future frustration if you remember to ask the above questions.
An extended warranty can be a useful form of mechanical insurance for your vehicle. Before accepting or declining one you should ask yourself the following:
How long are you planning on keeping the vehicle
How many miles will it be driven during ownership
Can you put aside money for emergency auto repairs
Also keep in mind the cost of the warranty vs the value of the vehicle you are purchasing. If you just bought a $10,000 car and are being offered a $2,000 warranty that is an additional 20% you have just tacked on. You will either add it to your loan and pay interest on it or you will pay up front out of pocket with money that could have been set aside for future repairs.
Finally keep in mind that just like the vehicle, the warranty is negotiable. They generally have a good profit margin built in so work for some of it back. Also buisness or finance managers are expected to maintain a certain percentage of warranties sold vs vehicle sold by the dealership so use this to your advantage. You do not have to make a purchase decision on the spot even tho you will be pushed to do so. Also unlike the vehicle itself you can return and cancel the warranty portion of the transaction at anytime and receive a refund on the unused portion of the warranty.
Hopefully this will help you make an educated decision the next time you come across this situation.