When consumers purchase a new car in the United States, virtually every one of those cars comes with a warranty attached. The length of the warranty and what it covers varies, but the most common minimum is 36 months or 36,000 miles, whichever occurs first. Korean automaker Hyundai offers a 10-year, 100,000-mile warranty on some models.
That’s all headline stuff, but when we dig deeper there are several details that demand close attention. And then there are extended warranties (often called service contracts) that most manufacturers and dealers now offer. Independent companies also sell extended warranties, and often one of the first things new car owners need to decide is if they should buy an extended warranty and, if so, from the manufacturer, dealer or a third party.
In fact, determining whether to purchase an extended warranty may be a decision to make even before you go shopping for a new car. Things to consider are how long you plan to own the car, how many miles you’ll pile up annually, and, of course, how much this kind of insurance will cost. If the dealer offers these warranty extensions be prepared to answer the question very soon after you agree to the purchase and the salesperson walks you into the finance and insurance office.
Remember, you have no obligation to buy an extended warranty. In most cases you also do not need to buy such a contract in order to qualify for financing. If a salesperson tells you need the extended service contract in order to get financing, check with the lender you’ve chosen. Cancelling an unneeded contract can be time-consuming and stressful.
Here are the five most important parts of a new car warranty.
Duration of Coverage
As the car gets older, the odds rise that the car will need service. One way to check how long the manufacturer expects certain parts of the car to last is to look at the maintenance schedule in the owner’s manual. If you plan to keep the car for a longer time than the warranty period, you may want to consider purchasing an extended warranty.
What the Warranty Covers
Although virtually all basic warranties include coverage for the drivetrain (engine, transmission, driveline and axle assemblies, and turbochargers). Most basic new car warranties do not cover parts that wear out (for example, clutches, brakes, batteries), and coverage for these parts is not usually available with extended warranties either.
A good rule of thumb here is that if a part is not listed in the warranty, it is not covered. Some plans may deny coverage if a covered part is damaged by a non-covered part. Also note whether the extended warranty includes a factor for depreciation in the calculation of how much is paid. The coverage may pay only a partial repair or replacement amount based on the car’s mileage.
Who Can Make Repairs or Do Routine Maintenance Work
There are no restrictions on who performs routine work on the car, but if the repair is covered under the original warranty then the dealer may specify where the work is to be done, but only if the work is provided free under the warranty. Federal law does not allow dealers to restrict your choice of mechanics (you can even do the work yourself), but if the part is installed incorrectly and then causes additional damage to the vehicle, the dealer or manufacturer may deny payment provided they can demonstrate that it was an incorrect repair that caused the damage.
The Cost of the Service Contract or Extended Warranty
While warranty repairs are free, after-market service contracts may include an out-of-pocket deductible in addition to the premiums you’ve already paid. Some of the deductibles cover a single visit that may include multiple repairs and others apply the deductible separately to each repair. The difference could be dramatic, so it is best to have a clear understanding of how this works in your particular case.
As with most things, it pays to shop around. The cost of extended warranty plans varies, and as we noted earlier, it pays to do some comparison shopping on extended warranties before agreeing to buy the car.
Transferability of Warranty Coverage
The basic warranty coverage may not be transferable to a second buyer. Service contracts or extended warranties may be transferable, but that is definitely something to check.
One other thing to keep in mind about buying a new car is that the dealer will very likely offer to sell you things like paint protection plans, prepaid service plans, theft-recovery plans, and a road-hazard warranty for the tires. Be prepared either with questions (or answers) when the time comes.
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