Used Car Warranty: Worth the Investment or a Waste of Money?

The Truth About Buying a Used Car Warranty

Should you buy a used car warranty off the Internet or TV commercial? NO! They’re not a good investment. If you’re buying a vehicle with a poor repair history, the used car warranty will be priced high enough to reflect the company’s risk, or they’ll price it low but exclude all the items that fail most often. You’ll think you’re buying protection against unexpected failures, but most of your claims will be denied. In most cases, you will never get your money’s worth from a used car warranty.

How about a used car warranty from a car dealer?

That depends. Some car dealers sell decent used car warranties from reputable companies, but those are very expensive—most are in the $3,000 range. However, if you’re buying from a used car lot, they usually sell low-quality warranties.

If you are determined to buy a used car warranty do your research

1) Ask the shops which companies are good

Don’t rely on online reviews—most are fake. Instead, contact the dealers and shops in your area and ask if they have experience working with the warranty company you like. Shops know which used car warranty companies are good and which ones they won’t work with.

2) Ask for a copy of the policy before you pay any money

The Devil is in the details, and in this case, the details are in black and white. The fine print is what binds you, not the promises of the person on the phone. If the company won’t let you look at the policy before you buy, they’re hiding something. Walk away.

3) Read the fine print, starting with: What’s covered and what’s excluded— Don’t assume the policy will cover items or failures unless they’re specifically listed

4) Read the definition of “failure”— Weasel warranties only cover failures due to a defect. Good warranties cover failures due to defects and wear and tear. If a part wears out from use and the policy only covers defects, it won’t be covered.

5) Where can you get the repair done?— Some warranties won’t cover repairs done at the dealer or will require you to call them first, and they tell you which shop you must use.

6) Flat rate guide and hourly rate— Weasel warranty companies will deny claims based on a high hourly rate or repair hours that are higher than their “guide.” However, their guide and their “average hourly rates” aren’t realistic. If the warranty won’t pay the shop’s hourly rate or the number of hours, you’ll have to pay the difference out of pocket.

• Diagnostic fees— Every shop charges a diagnostic fee. Most used car warranties don’t cover the diagnostic or teardown charges unless the diagnosis concludes that a covered part caused the failure. In other words, if the shop tears down your engine and finds that the cause of the failure isn’t covered by your warranty, you pay for all that tear-down labor, which can run into the thousands for an engine tear-down.

• Proof of maintenance— No use car warranty company is going to cover a failure caused by your neglect. If you don’t change your oil, coolant or transmission fluid on time and that causes a failure, kiss your coverage goodbye. So you’ll have to keep all your receipts for maintenance work. That’s the first thing the warranty company will request when you file a claim.

NEWS UPDATE From the FTC Regarding CarShield: CarShield, Nationwide Seller of Vehicle Service Contracts, to Pay $10 Million to Resolve Federal Trade Commission Charges of Deceptive Advertising

In summary

If you buy an unreliable car make or model and think you can cover your butt by buying a used car warranty, think again. The policy will cost at least as much as the repairs would have cost if you hadn’t purchased the warranty. If you buy a reliable car, you probably won’t even use the warranty, which wastes money. That’s why most financial planners and consumer affairs experts tell you to pass on a used car warranty.

©, 2019 Rick Muscoplat