You’re on vacation, having a great time exploring sights and sounds far away from the office, when the vehicle you’re driving makes an awful grinding clatter and sputters to a stop. You have a cellular phone, so you call for a tow to the nearest car repair facility. Once you arrive you find out that your gizmo (substitute any expensive, hard to obtain part you care to use) is broken and you are outside the time and/or mileage limit of the factory auto warranty. It’s going to cost you a hefty sum (which was not part of your vacation budget) to get it repaired.
What can you do? Well, if you have an extended auto warranty it may not be as bad as all that. Sure, you still have the broken vehicle, and the headaches that go with that situation, but at least you have coverage. In many cases it is not the vehicle being broken that causes the most stress, but the cost to repair it. As the saying goes in the auto industry, “they all break,” it doesn’t matter what brand of vehicle you drive, so why not be prepared?
Extended warranties typically can and do save you money in the long run. If you’re going to lease the vehicle and turn it in at the end of the lease period then this extra cost is probably not for you. If you purchased your vehicle, you may want to consider one based on your planned length of ownership. While any extended warranty may seem expensive at the time of purchase, they typically pay for themselves for long-term owners, and some even have a buy-back clause that makes them a “can’t lose” investment.
Maintenance may be pricey these days, but car repairs can be even more expensive. If you have only one big repair bill that is covered by your extended warranty, an automatic transmission failure for example, then your policy just paid for itself. Repairs to transmissions are frequently close to the cost of a remanufactured unit, which can easily be $2000 or more to replace. How about an air-conditioning failure? Based on typical repair costs, figure on spending $700 or more to keep your cool. Even if you have a $100 deductible you’re still way ahead of the game compared to footing the entire bill yourself.
You typically purchase an extended warranty contract at the time you purchase the vehicle, although some contracts can be purchased at a later date with no penalty charges. When you’re in the F&I (Finance & Insurance) department signing your DMV and/or finance paperwork you will probably be asked about purchasing an extended auto warranty for the vehicle. If interested, you’re usually given the choice of either the manufacturer’s brand or an aftermarket brand of contract.
Some dealers may offer only one brand of contract, and this may be either the manufacturer’s brand or an aftermarket brand, depending on the dealer. If they do not initially offer the manufacturer’s brand you should specifically ask about it to see if they have one.
The reason a dealership may claim to sell only one brand is that they often make more money on the aftermarket brand and/or that brand may be tied in with the dealer. Many dealers have their own brand of contract, in which they have a financial interest, with a fancy name to make it sound impressive. One thing is certain, if there is money to be made, then the dealer is going to be involved; that’s just smart business sense. Keep in mind that the F&I person’s commission may also be tied into the brand of contract that they are trying to sell you. You should explore all of your options based on what you want and what your needs are rather than letting the dealer lead you down a path of excessive warranty coverage just to score a higher commission.
An important consideration for whichever policy you decide to purchase is the ease of use when you do have to utilize the plan. If you buy the manufacturer’s plan you will be able to use it at any authorized dealer nationwide.
Ask these questions: If you can use the plan elsewhere, how easy is it to use? Do you have to pay the bill up front and get reimbursed? Does the company whose plan it is offer any payment to the repair facility via a credit card over the phone so you don’t have to pay any out of pocket expenses? How easy is the plan to use at the repair facility that will be dealing with it? Being on the phone, on hold, waiting to get authorization could cause a major delay in getting your vehicle repaired in a timely manner. Will a representative from the auto warranty company have to come out and inspect the vehicle? That will also add delays to the repair process.
Typically the extended auto warranties are the easiest to deal with from the repair facility side, as they are already on the payment program. With these plans you never have to pay up front on a covered repair, except for your deductible. Repairs are almost instantly approved, except in very rare instances where an inspection is required, and the whole process is basically seamless. What all this means to you is a lower financial burden and faster approvals, not to mention quicker repairs.
Once you choose whose auto warranty you would like, you’ll typically find that you are offered different levels of coverage within the same brand of contract. Some of those levels are for parts coverage, some are time and/or mileage levels and some are for the amount of your deductible. First take time to evaluate thoroughly what you estimate your requirements will be for time and mileage, and base the majority of your decision on this factor. Some of you may put a lot of miles on a vehicle in a short time period, so a high mileage plan (rather than an extended time plan) may be your most cost-effective option. Conversely, people looking to keep their vehicle indefinitely while not driving it long distances may want a longer time period plan with lower mileage coverage.
After deciding on your time and mileage, consider what parts coverage you would like, if options are available. You may be offered several levels of coverage that range from silver and gold to platinum or, for example, a powertrain plan that covers only the engine, transmission, and differential. The more extensive the list of components covered the more money it will cost you. You’ll get the best value by purchasing the best coverage plan you can afford.
Lastly, consider what you would like your deductible to be, again, if given the choice. You may be offered different options for your deductible such as $0, $50, or $100, with little additional cost to upgrade from a $50 to a $0 deductible. If you have a difference of $200 between the $0 and $50 deductible levels, consider that using the plan four times would pay for the difference in cost.
One point you should clarify is whether the deductible charged is per visit or per repair. Per visit means one deductible for any number of repairs on that same visit. Per repair means just that. If you come in with five items that are covered under warranty then you have five deductibles to pay.
One or more standard features may be included that make the contract more economically feasible, such as roadside assistance, covering items such as a tow service or, in worst-case scenarios, hotel bills, food and other unforeseen expenses when stranded away from home. Another feature could be a buy-back clause that allows you to get part or all of your money back if you do not use the contract. The buy-back clause makes getting a warranty a more financially acceptable situation for many people who are considering the purchase. Check also to see if the policy is transferable, as this is an excellent selling point if you decide to get rid of the vehicle before the extended warranty policy expires.
Obviously, price is an important factor in all of this, but you should remember that you can add the price of the auto warranty contract in with the financing of the vehicle, in most states, to help spread the cost out over the length of your vehicle loan, however I would not recommend this because there are interest on the auto loans. When you are looking at another couple hundred dollars to go up to the next level of coverage it works out to a very small increase in your payments. Consider the best plan that you can reasonably afford.
Keep in mind that a vehicle purchase is one of the bigger investments you make. Even though it is a bit of a gamble, purchasing an extended warranty plan that you never have to use can be worth the peace of mind it offers. What you spend in the short term will go a long way toward keeping your sanity if you are the person calling the tow truck while you are on vacation, stuck on the side of the road, with a broken gizmo.
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