Most new products – not just cars – come with some sort of warranty in place. Moreover, it’s common that the manufacturer or a third-party will sell extended warranties with extra protection, benefits, and longer timeframes. When looking at extended warranties of vehicles, it can be tough to determine whether or not they are worthwhile.
In some cases, an extended warranty is simply an upsell that the salesperson will try to push as you sign the paperwork to purchase a car–in fact it may not even be a warranty at all. Don’t be impulsive here. Take your time and understand what this “extended warranty” is and what it entails. If you are unsure what you are being sold, demand the salesperson to write the words “EXPRESS WARRANTY” on the actual agreement.
1. What Exactly Are Extended Warranties?
As you could probably tell from the name, an extended warranty provides coverage beyond that of the original warranty. However, it may extend the original manufacturer’s warranty, as is the case in most certified pre-owned vehicles. These traditional warranties typically work to provide coverage for manufacturer defects and repairs. But, be very careful. Many dealerships will push a service contract and tell you it is an extended warranty. Service contracts are very different and do not provide the same benefit as a standard warranty.
In regards to the coverage itself, extended warranties come in all sorts of varieties with different benefits and terms. For example, they do not have varying deductibles. If you see a deductible, it is probably a service contract. A warranty will usually cover the entire vehicle or all drivetrain components. A service contract will limite coverage to different parts, limit the number of shop visits, etc. Some might even have specific deductibles for each covered part – these tend to be a bit pricey, so you’ll need to have the details ironed out before you sign anything.
There are two general types of extended warranties:
1. Manufacturer’s extended warranty
These are essentially just an extension of the original warranty put in place by the manufacturer. For the most part, these warranties require vehicle owners to go to franchised dealers for new parts or repairs. Taking your vehicle to an outside service provider might actually void the warranty. These warranties are usually described as a Certified Pre-Owned Warranty..
2. Third-party warranties
Third-party extended warranties are usually issued by the dealership and work in very similar fashion as the manufacturer’s warranty, including limited repair to that specific dealership. Alternatively, service contracts are from independent companies, which may not be affiliated with the manufacturer or dealership. There is a certain degree of risk when signing up for a third-party Service Contract. For one, the repair technician that handles your issues likely won’t be certified by the original manufacturer, and if you have a lemon car, your rights under California’s lemon law can be rather limited.
Additionally, if the third-party company goes out of business, you will probably lose your coverage.
2. What Do Extended Warranties Cover v. Third Party Service Contracts?
To reiterate, extended warranties and service contracts can come in all shapes and sizes.
The coverage can range quite a bit and the fine print can be extremely tricky. As a general rule to live by when buying extended car warranties or service contracts, you are smart to get one that covers parts critical to the vehicles safety and functionality – such as the brakes, engine, transmission, steering, etc. Be very careful as you read the contract and make note of the exclusions.
On average, extended car service contracts normally cost between $350 – $700 per year. If the contract is drastically cheaper and makes a lot of bold promises, it’s probably too good to be true.
Most new vehicles come with “bumper-to-bumper” warranties, which cover just about every part between the front and back bumper. You want to be sure the extended warranty or service contract you are looking at covers the same components as this original warranty.
3. Who Covers the Repairs?
One of the crucial aspects you need to understand about an extended warranty is how repair bills are handled. Most manufacturer’s extended warranties cover the repair costs and pay the technician directly.
On the other hand, some third-party service contracts require the owner to pay the bill out of pocket and wait for the contract provider to reimburse them, which can be very inconvenient if the vehicle needs costly work. To make matters worse, it can take a VERY long time for the company to process receipts and issue the refund; you could potentially be waiting weeks – maybe months – to get reimbursed.
Now, in terms of lemon law, the specifications of extended warranties will vary from state-to-state. In California, your faulty vehicle is eligible to be classified as a lemon if a warranty-covered defect presents itself within the warranty period and you allow the warrantor a reasonable number of opportunities to repair that defect.
A service contract (even a manufacturer’s service contract) will greatly affect the recovery you are allowed under California’s lemon law if your new or used car is a lemon. While the service contract will cover certain repairs for a specified amount of time, you may not be able to be entitled to a lemon law buyback if you file a lemon claim. As a Los Angeles lemon law attorney, I get asked this question quite a bit.
4. Is an Service Contract Really Worth it?
The (not so) simple answer to this question is: it depends.
A big factor to keep in mind is how long you plan on keeping your car.
-About how many years do you normally keep a vehicle?
-Do you typically drive the vehicles you buy for as long as you possibly can?
Keep in mind, it’s pretty standard that an original manufacturer warranty will come with comprehensive drivetrain warranty coverage for up to four or five years or 60,000 or 100,000 miles, whichever comes first.
Another big factor to consider is the type of vehicle you buy. Some makes and models are known to have certain risk factors. Be sure you do your research before buying a car and identify the common problems. Your findings might justify a service contract.
Many experts generally advise against buying service contracts altogether, as most are jam packed with fancy-worded exclusions that don’t cover normal (and frequent) repairs. I tend to agree.
Service contracts are not uniform contracts and can vary quite a bit depending on the vehicle, manufacturer, or company. If you are compelled to buy one, DO NOT make this decision lightly. Take your time and understand everything in the fine print and clear up any questions with the provider.
For any further questions regarding extended warranties or service contracts, feel free to get in contact with us. We are happy to help with any confusion.