I've been selling extended vehicle warranties to customers for nearly eighteen years. People always ask me; aren't they a rip off? Of course I say:"No Way"!
So, why do I think extended vehicle warranties are a good investment when so many others are convinced otherwise? What is it that I know, that so many people seem not to know?
Unfortunately it's not such a simple answer, actually it's a bit long winded, but if you invest about four minutes to read this post, you might just learn a bunch and finally be able to answer this often misunderstood issue for yourself.
Here's what we know: Extended service contracts are very profitable for auto dealers. They're often sold to people who probably didn't need them and when examined for price vs. claims. Often they will come very close to a losing proposition to the customer.
Face it; there are many good sales people in the world, and many more customers that just don't know how to say NO. So they purchase extended warranties for thousands of dollars with usually a very low probability of ever cashing a claim.
So before I identify why I love extended warranties, I must state who should not be buying them and certainly not paying thousands of dollars in the process.
Let's assume that the average 7 year 75,000 mile NEW vehicle extended warranty costs customers approximately $2,000.00.
The following is a list of those who should not be purchasing:
• Someone who is buying a new vehicle with a new vehicle factory warranty that covers the vehicle with FULL warranty for up to or over 7 years 75,000 miles
• Someone who is not intending to own or drive their vehicle beyond the limits of the FULL factory coverage
Many extended service contract sales people will tell you that it's important to have an extended warranty even when you have FULL factory coverage, this is not always the case, often purchasing an extended warranty when you already have FULL factory coverage is redundant and frankly, a waste of your money.
Before we continue, I must point out a major factor in all decisions:
There is always a point where two lines cross. One line is: Value. And the other line is: Cost.
Now finally, on to my rational of why extended vehicle warranties are something that should always be considered (unless you are one of the two examples above).
Let's look at the other side: The following is a list of people who should always consider an extended warranty. (As long as the price is right...We'll get to that in a minute.)
• Anyone who intends to own their vehicle beyond the terms of the factory FULL coverage period.
• Anyone who will exceed the factory FULL coverage mileage
• Anyone who purchases a used car that does not have FULL coverage
• Anyone who is only getting Powertrain coverage on their vehicle
In summation, if you're purchasing a car, new or used, make sure you have a FULL coverage warranty. Either factory coverage or an extended service contract, but NEVER be without coverage!
Now, I'll give a quick and obvious explanation. You need to be covered with insurance when an unexpected event can end up costing you many thousands of dollars. It's that simple.
Would you ever consider not having health insurance? Of course not.
Would you ever consider not having FULL coverage automobile collision insurance? Of course not.
Why not? Because once again; you need to be covered with insurance when an unexpected event can end up costing you many thousands of dollars.
Ok, my purpose is not to explain the obvious benefits of insurance, it's simply to explain why extended vehicle warranties are equally as valuable.
Let's not get ahead of ourselves; there are still several things to consider before purchasing a service contract, you must pay attention here in order to get those two important lines to cross. (Remember, value vs. cost?)
You must know that if you're purchasing an extended service contract at a car dealership at the same time you're taking delivery of your new car, you are not making a bad choice. As long as you fit into the categories listed above. However, you shouldn't pay $2,000.00 for it.
New vehicles already come with some degree of factory coverage. If the dealership offering you the extended warranty for $2,000.00 or anywhere in that vicinity it's just too high.
Extended service contracts, like life insurance cost the least when the insured is the youngest. So, you should be aware that the dealership is charging you the customer quite a bit more than they're paying if they are charging $2,000.00. This is your time to negotiate a better price!
Remember, make the lines cross or just say NO. Get the dealer to drop that price way down, maybe to a thousand dollars or so, or perhaps even less.
Keep these thoughts in mind:
You can always purchase the extended service contract later. Although most dealerships will tell you there are surcharges for such actions, that's not always true. Just about every major service contract company will give you a period of 1 year or 12,000 miles from the original "in service" date of a new vehicle to elect to purchase the extended service contract without any additional fee. In addition, you can apply an extended service contract to vehicle within 3 years of the original in service date or 36,000 odometer miles - however usually a small additional service fee is added to the cost of the policy.
If you get the right price BUY IT at the dealership, but be careful, don't just agree to purchase it because it's only $40.00 additional per month. That can be over a very long loan term and end up costing you plenty of extra money.
Negotiate the price, not the payment amount, just like anything else.
Also remember, when you add an extended warranty to a vehicle finance contract you are likely paying interest on the unpaid balance of the loan, thus by adding the service contract you'll be adding to those finance charges.
Ask the dealership if they offer a zero interest payment options for the service contract that can be taken separately from the vehicle financing. Get the price and payments -tally them up and compare that number to the additional payment the service contract would be if you added it to your finance contract. Obviously the lower total is the better deal.
Finally, you can buy it online. Always remember that third party service contract providers are just as good as most service contracts offered at the dealership. Just be sure the service contract you elect to purchase is underwritten by a reputable administrator. Ultimately it doesn't matter where you purchase the contract as long as you understand the exact coverage limits and provisions and you know and trust the administrator. The administrator is the only party involved when it comes time to pay a claim.
I have an extended service contract on each and every vehicle I own in my household. Only one of them did I purchase from the dealership where I bought the car, the rest, I found on my own. I'm the world's largest advocate on extended service contracts, to this day I have my sons' vehicle in and out of the shop what seems like every other week. Thousands of dollars have been covered by the administrator (GMAC Vehicle One) in fact, I've recovered my cost over 4 times and he's only had the vehicle for 2 years... Things happen that we can't control. I couldn't imagine what I would have done if I didn't elect to cover this car. I would have been in a heap of trouble.
