When you buy a vehicle from a dealership or a car lot, whether new or used, you’ll probably be asked about an extended warranty. That decision is up to you, but there are things you need to know to make an informed choice.
Extended warranties, also called service contracts, cover repairs beyond the vehicle’s factory warranty. Basically, you’re gambling on whether your car will need fixing down the road. It’s a deal if the plan saves more than you paid for it and money wasted if it doesn’t. And, of course, they wouldn’t be offered if companies didn’t make money on them overall.
Plans are offered by the vehicle manufacturer, or by third-party warranty companies, each with pros and cons.
With a manufacturer’s plan, all of the brand’s dealerships have to honour it. In almost every case, there’s no waiting for factory authorization for repairs, and the shop will use original equipment or factory-authorized remanufactured parts. However, these plans may be pricier and might not be available on all used models, and all repairs have to be done at a dealer.
Third-party warranties often cost less, and may be your only choice on some used vehicles, but they’re more of a hassle. Repair shops aren’t obliged to honour them, and you may have to pay for the repair and wait to be reimbursed. You may also be steered to a specific shop by the warranty provider, rather than one you prefer.
Most plans require authorization before the repair can be done. This is usually done by phone or fax, but on some major repairs, you may have to wait for a claims representative to actually see your vehicle.
You’ll probably have to prove you’ve had regular oil changes done, and on time. It’s not unheard-of for a third-party company to refuse coverage if you’re even a few kilometres past the requirement.
What you need to know:
What isn’t covered can be more important than what is. You may have to pay for some or all of the diagnostic time, or peripherals such as fluids, gaskets, belts, hoses or fasteners. You may also have to pay to replace a covered component if it was affected by the failure of a non-covered one.
Some plans require the vehicle to be inspected before it can be covered, and you may need to carry your maintenance invoices with you so the shop can fax them in for authorization. Know exactly what your obligations are to maintain the coverage.
What are the warranty company’s business hours? If your technician has to call Vancouver for authorization, for example, the time difference could delay your repair.
Have you read the actual contract, rather than just the warranty brochure? You need to see all the fine print.
What you need to consider:
Factor in any costs that increase your plan’s price. If you roll it into your car payment, you’re paying interest on it. Deductibles add up: five repairs with a $100 co-pay each add $500 to the plan’s total price. Make sure you know if the deductible is per visit and covers as many repairs as needed at the time, or applies to each individual repair.
Find out what happens to the unused portion of the warranty if your car is written off, if you sell it, or if you cancel the plan.
Never take the salesperson’s word on anything. Get everything in writing: what’s covered, what isn’t, your obligations, the process for getting your car repaired, and the refund policy.
If towing and loaner car coverage costs extra, it may be cheaper to join an auto club, or find alternative transportation when needed. Ask about any towing distance restrictions, and how long your car has to be tied up before you qualify for a loaner. Most loaners are rental cars, so if you’re a young driver, ask about age restrictions. There’s no point paying for extra coverage if they won’t give you a car.
If you have the willpower, you may be better off banking the money you’d spend on the plan, and use it for any repairs that come up. If nothing goes wrong, that cash is still yours.
The bottom line
You need to work with your budget and your comfort level. If you’re fine with handling repairs as they come up, an extended warranty may be unnecessary. If you’re nervous about car repairs, it may be money well spent. But no matter what type of driver you are, do all your homework before you sign on any dotted line.