Used Car Buyer Watch List: Extended Warranty

Used car buyers often see dealerships trying to tack on extended warranties at the end of the sale. Paying extra for a warranty on a used car can sometimes be a good idea, but only if you know what you’re getting. Spending too much on an extended warranty, especially if you are a subprime borrower, could cost you money in the long run.

This blog series has cast a light on a variety of ways the fine print in a dealership’s purchase agreement can hurt consumers. Past posts have put new and used car buyers on the lookout for short claims periods, mandatory arbitration clauses, and “as-is” language. This post looks at how dealerships use extended warranties to convince buyers to take a risk on used cars not worth the cost.

Extended Warranties Fill Gaps in Used Car Coverage

New vehicles come with a variety of manufacturers’ warranties that apply to the car as a whole, or particular parts. These are often limited by time and the number of miles on the car. If a part breaks during that period, the manufacturer promises to repair it or replace the car. Late-model used cars can sometimes still qualify for manufacturers’ warranties that haven’t expired. But if you are buying an older car, there may not be any promises that the car won’t break down or need repairs soon after you close the deal. 

To address this, many used car dealers offer extended warranties they say will cover your repairs if something goes wrong. Purchasing an extended warranty can sometimes be a good idea, but the value will depend on the fine print.

An Extended Warranty Not Worth the Money

When extended warranties don’t reach as far as you thought, they can leave you with a car you can’t drive, and can’t pay to fix. Chris, a client of The Liblang Law Firm, PC, bought a used 12-year-old Dodge Durango. She didn’t have good credit, or much income, so she was forced to make a deal with a dealership and lender that handled subprime auto loans to high-risk customers. 

The Durango had a retail value of $4,750, but she paid $7,500 as its base price. When it was time to sign the purchase agreement, the dealership’s salesman convinced Chris to pay an extra $2,200 for an extended warranty the salesperson said should have paid for anything if something went wrong.

But 2 months later, the car was in the shop with an engine problem. Chris would need to pay $5,600 for a new engine, to fix it, so she turned to the dealership to take advantage of the warranty. It turned out, that extended warranty wasn’t worth nearly the money she spent on it. The fine print of the purchase agreement said the warranty would only pay for $1,500 in damages -- $700 less than she spent to get coverage in the first place. That left Chris unable to pay for the repairs, or use the car.

What to Watch for Before Buying an Extended Warranty

Other items on a used car buyer’s watch list could be deal breakers, but an extended warranty isn’t automatically a bad deal. The danger is in the fine print. If you are considering paying extra for a warranty on your new used car, read the purchase agreement and warranty terms very carefully. Look for limits on the amount the dealership will pay for, as well as time limits for when the repairs can occur, where it is done, and how quickly you must notify the dealer. If the payout value is too low or the time period covered is too short, the warranty won’t be worth the money.

Extended warranties are one of many ways used car dealers and subprime lenders take advantage of buyers with poor credit and limited lending options. The people least able to afford a new vehicle are often the ones targeted with high interest rates, inflated car costs, and excessively limited extended warranties. If these used car dealers are your only option, be certain to read every word of your purchase agreement carefully, and don’t get talked into a bad deal.

Dani K. Liblang is a lemon law lawyer at The Liblang Law Firm, PC, in Birmingham, Michigan. She helps new and used car buyers enforce warranties and recover for defective vehicles. If you bought a lemon, contact The Liblang Law Firm, PC, today for a free consultation.