Once you’ve agreed to a deal on a vehicle, you normally leave the action of the showroom and move to a quiet office with the dealership’s business or finance manager. This person assists with arranging financing on your vehicle if needed, and helps put together the proper paperwork to get your vehicle insured and registered.
They will then usually go over what warranties are on the new vehicle you purchased, what the coverage is, and what your responsibilities are to maintain coverage. If it’s a used vehicle they will go over any remaining warranty on the vehicle.
You will then be offered the opportunity to protect your new investment, your lifestyle, and your estate. Life and disability insurance and life insurance coverage would be used to protect your current lifestyle and estate. We will discuss these in future articles.
New vehicles come with a base warranty. Normally it’s something like three years or 60,000 kilometres on most items and five years or 100,000 kilometres on the powertrain. Used vehicles would have whatever is remaining of that at the time of purchase.
Extended warranties, or extended service contracts as they are sometimes called, allow you to extend or add warranty coverage on the new or used vehicle you just purchased. Extending the warranty to match the term of financing is quite popular.
Extended warranties have been the subject of much debate over the years. They have saved people from huge expenses when something catastrophic happens and they have angered people when they didn’t come through and cover a huge expense when needed.
Like most things in life, cheaper is rarely better. If you decide to purchase an extended warranty don’t allow cost to be the main factor. There’s no sense buying something that won’t do what you need it to.
Your first choice should always be extending the manufacturer’s warranty rather than purchasing a third-party warranty. They usually cover more and allow the use of original manufacturer’s parts. The local dealer can usually authorize the repair on the spot rather than wait for approval.
If you’re buying a third-party warranty make sure you know what the coverage is and what the deductibles are. Third-party warranty companies range in quality from good to absolutely horrible. It’s a good idea to ask the service department of the dealership offering third-party warranties what their experience with claims have been.
So, assuming you get one that is of quality, what are the pros to buying an extended warranty?
The dealer will look after all the paperwork right there for you and can build it in to your financing. Your cost will be spread over the term of your loan. This will offer a more dependable (though not necessarily cheaper) cost of driving. You will not have any out-of-pocket repair bills that always seem to come when you can least afford it. Very few people set aside money for vehicle repairs even though we know they are inevitable. Vehicles today are full of expensive technology. When you have unexpected repair bills it affects that month’s budget. The whole family feels it.
Having an extended warranty offers great peace of mind. But what are the cons to buying an extended warranty?
They can be expensive and like all insurance is essentially a gamble. You’re betting that the cost of future repairs will be more than the cost of the warranty. The warranty provider is betting that for most clients it won’t be.
Extended warranties come with a lot of fine print that you may not have been advised about. Most have a list of things that are excluded with each level of warranty. If you do purchase a warranty be sure to review the excluded list. Ask what your responsibilities are to maintain coverage. Can, and will, you do this?
Some warranties are only good at certain repair facilities which may not be convenient for you. Who will cover the cost of getting your vehicle to the designated repair facility? There can be very large tow truck bills the warranty does not cover.
Finally, you may never need to use it and the extra cost would have been for nothing.
So, should you purchase an extended warranty? There really is no right or wrong answer here. It’s a personal choice.
You should ask yourself the following when making the decision: How long do you plan to own the vehicle? How important is it to you that you have a dependable cost of driving? How important is peace of mind to you? What have your past repair bills been and how easy was it to manage them? If you purchase a warranty and never use it will you still be ok with the decision?
Share this information with the business or finance manager at the dealership and together come up with a plan that is best for your situation.
Catch Driving with Jens on CHON FM Thursdays at 8:15. If you have any questions or comments you can reach out to Jens Nielsen at firstname.lastname@example.org, Facebook or Twitter: @drivingwithjens.