How to Choose the Right Extended Warranty

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When you purchase a vehicle from a dealership, they often try to sell you a vehicle service contract, or extended auto warranty. While many people feel that this is a way for the dealership to squeeze extra money out of them, it is actually a good investment. With the ever-increasing cost of repairs, a service contract can actually save you a lot of money should your vehicle need repairing.

When you are considering if an extended warranty is right for you and what plan will best fit your need, here are a few questions that you should ask yourself.

  1. Consider what coverage you currently have and how long you plan on keeping your vehicle. If you just purchased a brand new vehicle, take a look at the factory warranty. Many factory warranties will cover the car for 3 years or 36,000 miles. If you only plan on keeping the vehicle two or three years, then an extended warranty may not be for you. If you plan on keeping the car well past the factory warranty expiration, then an extended warranty makes sense. If you purchased a used vehicle, find out if there is any warranty coverage provided by the dealership or if there is any factory warranty coverage remaining (this will depend upon how many miles are on the vehicle and the age of the vehicle). Some manufacturers even offer “certified used”programs that will extended the original factory warranty. If the vehicle you purchase is not under warranty, then an extended warranty should be considered. 
  2. Who is behind the warranty that you're considering? An extended auto warranty may be backed by an independent warranty company ( aftermarket or third party warranties) or by the covered vehicle's manufacturer.  No matter what company backs the warranty, check their rating. The underwriting company should be rated by A.M. Best and the Better Business Bureau. (A.M. Best is a credit rating organization dedicated to serving the insurance industry.) When shopping around, find out who is underwriting the policy and check out their ratings. The A.M. Best rating should be at least an A+ and their BBB rating should be at least an A.
  3. What's the nature of its deductible? Look at the deductible. Figure out how much it is and if it is per visit or per repair. Most warranties offer per visit, but do your homework. If you obtain a policy that has a per repair deductible, you could be paying more than you expect. If you take your vehicle in and more than one part need to be repair, then you will have to pay a decutible for each part that is fixed. With a per visit deductible, you will pay one deductible every time you visit, no matter how many repairs are conducted during the visit.  The amount of the deductible will range depending upon the poilcyt. While the lower the deductible, the more the plan will cost, if you bring your vehicle infor several repairs, the lower deductible will be worth it.
  4. Is the warranty transferable? See if the warranty can be transferred, should you decided to sell the car. If it is, then it can be an excellent selling point to prospective buyers is you should sell your vehicle.
  5. Can repairs be performed at any repair shop? For some people, getting to the dealership where the warranty was purchased can prove to be difficult or inconvenient. Opt for a warranty that will allow you to choose a service and repair shop.
  6. What exactly is covered? Each person needs a different level of coverage for their vehicle. Figure out what is covered in each plan. Does it cover wear and tear as well as break down? Does it cover all the gadgets that your vehicle is loaded with? Figure all this out and choose the plan that will best fit your needs and will keep you from having to pay a high repair bill.
  7. Is a cash layout required for repairs? Some extended warranties require that you pay the repair bill upfront and they will reimburse you the cost. The reimbursement process may take several months. While these plans may be cheaper, opt for a plan where all you will pay is the deductible. These plans often cost more, but many warranty companies offer financing. You can pay for the loan in monthly payments that will fit you budget better than shelling out potentially thousands of dollars for a repair while you wait to be reimbursed for it.

Consider all your options before making an extended warranty decision. Consult your local dealer, repair shop and even consider your last warranty administrator when choosing a plan. In warranty buying land, it helps to be fully informed.