Should you purchase an extended warranty on a used car?

Everyone who has purchased a used car at a dealership has probably experienced the following scenario: You feel somewhat relieved to have made it through the price haggling process only to be presented with more extras to buy when you are signing the paperwork.

Having seen this play out thousands of times through my car selling career, I can tell you that there are some customers that absolutely will not spend another penny on extras, some that will be in a state of Zen and buy everything and then there are the majority of people that will agonize over the decision to buy an extended warranty.

Are extended warranties worth the price?

This first thing you must realize is that not all used car extended warranties are created equal. To make things easy let’s put then in two categories: Factory and Independent.

Factory extended warranties are warranties that are branded by the manufacturer. For example if you bought a used Toyota from a Toyota Dealer you might be offered a “Toyota Extended Warranty”.

Independent extended warranties are warranties that are backed by companies not related to the manufacturer. They are usually called something like “National Auto Protection”.

Over the years, I have seen several of these independent warranty companies “flame out “ in spectacular fashion leaving the policy holder with no coverage whatsoever. That being said, there are probably are some good independents out there but here are a couple of ways to tell if you are dealing with a risky warranty company.

First, if the salesman does not provide you with a copy of the policy describing the exact coverage and they claim they will mail you the completed policy after you have completed the transaction. It is not a good idea to purchase this warranty. In many cases, these companies won’t even furnish you with a brochure.

Secondly, try to determine who is the underwriter for the warranty. In recent years, many new independents have arrived selling used car warranties and after doing some research I discovered the underwriters to be companies located overseas. It is my obvious advice to stay away from these warranties.

Finally, another way to determine if a used car warranty is viable is to use common sense. In other words, if it sounds too good to be true then it probably is. If a five year extended warranty on a $30,000 car only costs $1500 the coverage is probably not very comprehensive.

Factory Backed Extended Warranties

On the other hand, factory extended warranties are vetted and they will cover what they describe in their policy. However, they will generally be more expensive and when you are considering a factory extended warranty you must rely on what price you are willing to pay for peace of mind.

Also, when you buy a factory extended warranty the car must have been certified by the factory. This means that a used car inspection was completed that includes a comprehensive check of the vehicle’s current condition. If any item is determined to be inoperable or damaged it must be replaced before the warranty could be sold. Unless you are buying a historically unreliable car, even a factory extended warranting may not be worth the price.

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