Warranties on new and used cars are confusing, at best.
But in spite of the sometimes-confusing terminology, keep this in mind — “warranty,” in this case, is just a fancy word for “insurance policy.” When it comes down to it, that’s all a new- or used-car warranty is, an insurance policy for car repairs. You pay the premium, usually in one lump sum after you buy the car. When it needs repair, the company backing the policy pays for them, depending on what’s covered in the policy.
And they are very profitable for dealers, which explains the “hard sell” that sometimes surrounds them.
We came across the following information from the Service Contract Industry Council, which describes itself as “a national trade association whose member companies collectively offer approximately 80 percent of the service contracts sold in the U.S. for home, auto, and consumer goods.”
Here’s what they have to say:
• Most service contracts are sold face-to-face at the point of sale from reputable automotive dealerships. Many reputable providers administer and service the contracts sold through these outlets, and also sell them independently, some via the Internet.
• Do not buy a service contract if the provider will not supply you with a copy of the contract terms and conditions prior to purchase.
• Be alert to service contract providers who use unsolicited mass marketing techniques, such as direct mail and telemarketing (e.g. “robo-calls”).
• Avoid purchasing service contracts if you feel overly pressured by sales personnel. Service contract coverage for autos can typically be purchased on the spot or days after the product purchase, giving consumers time to review the terms and research the provider (more on this below).
• Thoroughly read and understand the terms and conditions of your service contract and be prepared to realistically fulfill all responsibilities related to regular maintenance, such as oil and filter changes, etc.
• Some service contracts provide a 30-day, “free-look” period for consumers to review the contract and return it for a full refund if they decide not to purchase the service contract.
• Consumers should locate the name of the service contract provider on the contract. If a contract does not list an administrator’s contact information, contact your state Department of Insurance or the Better Business Bureau to determine if the company is authorized to do business in your state. Keep in mind that not all states regulate service contract providers and that many states exempt manufacturers from regulation.
• While many “e-providers” offer competitive pricing and reputable service, use caution when purchasing a service contract over the Internet and guard against “phishing” scams; make sure you know who you are giving information to.
• Maintain a dedicated file for contracts, receipts, and maintenance records and use the service contracts as often as needed and applicable to enhance product use and maximize investment.
A couple more points from us:
After you decide to buy a car or truck at the dealer, the F&I (finance and insurance) person will try to sell you everything from undercoating to roof racks to “stylish” wheels to upgraded audio to security and alarm systems — they’ll also offer a warranty.
It’s at this point, if you decide you do want the warranty, that you turn-on your negotiating power (or what’s left of it after going through the whole car-buying process). If the price for the warranty is $700, for instance, offer half that, and let the games begin.
But, depending on where you live, you may have up to a year to buy that new-car warranty, so don’t let yourself be pressured — there’s really no hurry.
Steve Parker is a two-time Emmy Award-winner who has covered the world’s auto industry and motor racing for over 35 years. He created, writes and moderates the only all-automotive blog on The Huffington Post at www.huffingtonpost.com/steve-parker. Parker hosts live one-hour automotive and motor racing call-in radio shows each Saturday and Sunday at 5 p.m. on www.TalkRadioOne.com. Contact Steve through his own automotive issues Website at www.SteveParker.com