If you've ever bought a new car or one with reasonably low mileage from a dealer, chances are good that it came with some kind of warranty protection. While not a guarantee of perfection, the warranty at least gives you some peace of mind. If the drivetrain, transmission or other components covered under warranty give you trouble, you wouldn't have to ante up fistfuls of cash to fix it.
But what about when that warranty, provided by the manufacturer or perhaps even by the dealer, expires? Is it worth shopping for a new warranty? Or responding to those companies that call car and truck owners out of the blue, marketing "extended warranties" for the owners of well-used vehicles?
The answer depends on a lot of things, including the vehicle owner's tolerance for risk, the reliability of the car or truck in question, the vehicle's remaining useful life and perhaps most important -- the reputation of the company providing the extended "warranty."
Why do we put "warranty" in quotes like that? Because by the strict legal definition, extended warranties aren't actually warranties. They're actually called service contracts. As such, consumers must be careful with whom they're dealing -- just as they would when contracting for any other professional service.
The industry that provides these service contracts has weathered considerable scrutiny for practices described as deceptive, pushy and exploitative when it comes to automotive extended warranties. Then there's the question of how useful the contracts are themselves -- do they pay for themselves in terms of the repairs a consumer is likely to need for his or her vehicle?
The answers aren't cut and dry. Some consumer advocates say such contracts are rarely worth the money, and by no means should someone agree over the phone to a contract the company does not let you see in writing beforehand [source: Weisbaum].
Representatives of the service contract industry maintain that ethically marketed and strongly backed contract firms offer several benefits to vehicle owners: access to pre-qualified technicians, protection from repeated repairs that fail to fix the problem and amortizing repair costs over the long term (reducing the pain of getting a large repair bill when something major breaks). Boiled down, service contracts are a form of insurance -- not surprisingly, these pieces of paper are backed up by insurance companies [source: Service Contract Industry Council].
In our increasingly disposable society, the notion of "replace rather than repair" has taken firm hold when it comes to consumer electronics, small appliances and anything where the hourly repair bills are likely to exceed the cost of a new (and likely much improved) unit. Still, on a big-ticket item like your vehicle, it's understandable to want to prolong its use as long as you can. So if you do decide to purchase an extended warranty, be sure to check for the following:
- Do some research on the company responsible for paying your service contract claims (called the administrator) and make sure you're satisfied it'll be around in case you have a claim.
- Check on the laws in your state -- some states, like New York and California, have laws on the books for such contracts while others do not.
- Investigate the contract seller's record with your state attorney general, the Better Business Bureau as well as any local consumer protection organizations [source: Federal Trade Commission].
For more information about extended car warranties and other related topics, follow the links below.
- Federal Trade Commission. "How to Steer Clear of Auto Warranty Scams." September 2009. (Aug. 15, 2010) http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt155.shtm
- Warranty Week. "Meet the SCIC: The Service Contract Industry Council fills the role of lobbyist and extended warranty industry watchdog." March 3, 2003. (Aug. 17, 2010) http://www.warrantyweek.com/archive/ww20030303.html
- Mello, Tara Baukus. "Buyer Beware: Car Extended Warranty Scams." Foxbusiness.com. July 9, 2010. (Aug. 15, 2010)http://www.foxbusiness.com/personal-finance/2010/07/09/buyer-beware-car-extended-warranty-scams/
- Service Contract Industry Council. "Motor Vehicle Service Contracts." (Aug. 17, 2010) http://www.go-scic.com/insidepages/auto.cfm
- Weisbaum, Herb. "Auto warranty firms launch sleazy scam." MSNBC.com. Feb. 15, 2008. (Aug. 20, 2010)http://www.msnbc.msn.com/id/23147777/