Prepaid Auto Repair

Are extended warranties and maintenance plans worthwhile?

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author photo by Autotrader March 2005

With extended service intervals and, in general, higher levels of reliability and durability, today's cars spend a lot less time in the service bay. But on the downside, when something does go wrong, it's expensive. Enter extended warranties and extended maintenance plans. They're certainly not free - or cheap - but they aim to help make those occasional costly repairs a little easier to stomach.

Whether they're called extended warranties, maintenance plans, service plans, or care plans, these extended policies are like health insurance for your car, meant to soothe the sticker shock associated with major failures, unexpected repairs, and sometimes expected ones.

Before you consider adding a plan at your next car purchase, or to a vehicle you already own, there are some questions you need to be asking:

Is an extended repair policy right for you? Are you one who prefers to simply have your payments made and then be worry-free? If so, an extended warranty or maintenance policy might be right for you. If you're frugal with your money and the thought of one more regular payment irks you - and you think the odds are on your side - then you might be better off going it alone. But are the odds on your side? And what kind of price shock could you expect? Start by preparing for the worst. Check the cost of a replacement engine and transmission and/or clutch. Ask a mechanic what some of the worst, most expensive repairs are, and price them. Now add together the payments in your policy over a few years. Does it still make sense?

Consider the other benefits. Many of these extended care policies also include roadside service, rental-car fees, and trip interruption compensation. Are these worthwhile to you, or are they services you already pay for through insurance or an auto-club membership?

Does your vehicle already have warranty coverage? New vehicles now come with some pretty impressive warranties nowadays, with almost every vehicle sold with a minimum coverage of three years or 36,000 miles coverage. Some manufacturers even extend powertrain coverage out to ten years or 100,000 miles. If the car is still covered under the original manufacturer's limited warranty, check how your extended policy would overlap with it, and whether it's worth having both.

Manufacturer-supported or third-party? Most automakers offer some sort of extended warranty coverage that may be added to new-car purchases, and that coverage can almost always also be applied to used cars, or at least those that are purchased through special "certified" used-car programs. So-called third-party policies - provided by a company that has nothing to do with either the manufacturer - are generally priced lower-priced but considered inferior to manufacturer-supported programs, even though in many cases they might offer coverage that's just fine. Our advice is to get a manufacturer-supported policy if you can get it. Even if you're buying a late-model vehicle from the used lot of a new-car dealership you should be able to get coverage under one of the manufacturer's extended care policies for an extra fee. Dealerships may try to steer you toward other third-party policies, simply because there's a higher profit margin on them.

What's covered? This is very important question that may help you decide if the policy is worth taking out. Some warranties may cover only major powertrain components, others may cover the entire vehicle. A few policies that call themselves "extended maintenance" or "extended service" plans may actually pay for everything, but they're the exception. Typically, there may be a long list of things that the extended warranty doesn't cover. You might be surprised to see expensive items like timing belts, A/C compressors, wiring, or leaky gaskets on that list. Also, does the policy cover whatever parts and labor total the repair actually did cost, rather than what the company thinks it should have cost?

What's the deductible? Keep in mind that you'll still have to pay for smaller repairs and the deductible amount for larger ones. Check if the deductible is paid per visit or per repair - and if so, what constitutes a single repair.

Who does the repairs? Does the repair have to be done by the dealership where the car was bought? Can it be done by another dealership for the same brand? Or can the repair be done at virtually any shop if need be? If so, is the deductible or payment method any different? With manufacturer/brand-specific programs, work is typically done - and documented - at a dealership with the proper parts and procedures, but these programs might give you trouble if you try to get reimbursed after having the job done by a private garage.

Who backs the warranty? This is an especially important question to ask. Some extended warranties will be through a third-party company that only writes policies for the companies actually providing the coverage, in a similar manner to an insurance agency. Typically, the bargain policies - and the ones that are more limited - are backed by general risk/insurance companies that are simply betting on your odds of a breakdown. If you're not sure, check the company out. The Better Business Bureau is a start.

Don't buy an extended warranty from a used-car lot. Buying a car from a used-car lot has its own hazards. But provided you found a good car you liked, had it checked out by a knowledgeable mechanic, and were able to get a fair deal on it, most likely the salesperson is going to push, push, push for that extended warranty. The markup on the warranty is usually 50 to 100 percent, sometimes even more. Salespeople will flat-out lie to get the easy extra few hundred bucks.

Shop around. Ask at your bank, credit union, and insurance company or auto club. There may be rather inexpensive policies you could take out that would guard against huge repair bills (although with a deductible). Be leery of unsolicited offers coming in the mail, and especially the online companies offering cut-rate coverage. If they can't list their phone number, mailing address, and financial information online, what else are they hiding? Many of them are simply brokers for other companies, which may have drastically varying levels of coverage and/or trustworthiness. The best policy is one either from the manufacturer or through a reputable organization you already trust.

Read the fine print. If there's ever any doubt (and there should be), read all the fine print, even take it to your lawyer if necessary. Better to work out all the legalese in advance.

Don't rush into it. You don't have to take out the policy right there when the rest of the deal goes down. For most of these plans, you can take days, if not months, to decide. For instance, Honda Car extended policies can be purchased up to 24 months or 24,000 miles, whichever comes first, and other rival manufacturer's policies are similar. If anyone tries to get you to decide right then and there or not at all, and they won't let you walk away with a copy of the terms to scrutinize, then forget about it.

You're probably best to think of any optional extended maintenance plan as an insurance policy. If something goes wrong, then your coverage should help pay for your claim. With any extended maintenance plans, the company issuing them has put a lot of effort into making sure the odds work on their side. Very reliable cars, or cars that cost less to run, will have affordable maintenance plans, while cars that have expensive parts or are trouble-prone will likely have higher plan prices.

Finally, remember that you get a policy like this to be free of worry. If getting the policy just introduces more uncertainty, then you'd probably be better off just putting the money under the mattress.

©2008 by The Car Connection™ All Rights Reserved - The Car Connection is a Trademark of DA Acquisition

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Prepaid Auto Repair - Autotrader