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Top 5 Extended Car Warranty Buying Mistakes

By | Published January 11, 2012

Extended car warranties are the most controversial topic, by a long shot, on CarBuyingTips.com and complaint sites that you will find around the web. There are people out there who are against all extended warranties (also known as vehicle service agreements or VSA). Some warranty claims are rejected, so consumers think that all warranties stink, when in fact they were rejected for legitimate contract reasons. There have also been some high profile warranty crash and burn scams over the years, like Warranty Gold and US Fidelis.

warranty certificate

Sure there are bad apples out there, just like any business, but we show you how to research and avoid them. We have the best guide on the internet called How To Buy An Auto Extended Warranty & Avoid Scams that teaches you all about vehicle extended warranties. We'll show you how to buy them, scams to look out for, how to avoid getting claims rejected and how to research a company's background.

We also cover where to get quotes, reviews of the better quality companies to use, and we explain everything you need to know about extended car warranties. There's nothing on the internet that comes close to our guide and reveals more scams.

Top 5 Mistakes

  1. The warranty they buy only covers mechanical breakdown failures and not wear and tear failures. This is the top reason given for warranty claims being rejected. Not knowing what is not covered in your contract agreement, and not knowing the difference between wear and tear and mechanical breakdown coverage costs you thousands in rejected claims. Once the manufacturer's warranty expires, the buyer will find that most failures on the car will be classified as wear and tear failures which are not covered by most cheap diluted coverage "mechanical breakdown" warranty plans. Piston rings wear down, they don't break, so this type of claim gets rejected under a standard mechanical breakdown warranty. See the problem here? It is avoidable. Naturally the buyer won't take the blame for failing to do their due diligence first, and buying the wrong warranty type, so they go online and tell the world how bad extended warranties are, and how bad XYZ Corporation's Warranty is, and they file Better Business Bureau complaints.
  2. They buy the auto extended warranty on price alone without reading the contract first. They don't compare car dealer warranty prices to online quotes. Most importantly they don't compare the features or check out the warranty company first. You get what you pay for in life, so I always search through the contract to make sure wear and tear is covered. Then, if possible, I make sure I am buying an "exclusionary coverage" warranty, which means everything on the car is covered except for the small list of standard exclusion items. This costs more, but you are fully covered. This is true bumper to bumper coverage. I do not recommend "named component" coverage, that just lists a group of items on the car that are covered, because if your failure is not on that list, you are not covered. But with an exclusionary coverage plan, if your failure is not on the exclusions list, they have to cover your claim.
  3. The buyer purchases their used car extended warranty on a vehicle with a preexisting condition, like a broken A/C and leaking radiator and a slipping transmission then makes a claim 2 weeks after buying the warranty. They get denied of course, because red flags went up in the claims center, they get all angry and go online spouting what a rip-off the company is, when they were trying to rip off the company themselves. Let's see, how stupid can we be here? Filing a fraudulent claim for a preexisting condition within days of buying a vehicle service agreement sets up red flags with every warranty company, and you will be denied. Some warranties have a 60 day or 1000 mile no claim allowed period. If you buy a car with known issues, then proceed to buy a warranty with the intent of getting them to pay for your repairs, you will be sadly disappointed. That's also unethical. You should always have a mechanic inspect a used car before you buy to make sure the transmission or motor oil is not burned. These companies are a lot smarter than you with expert mechanical inspectors who can tell if neglect was the cause of a failure, and can still reject the claim.
  4. The warranty customer often gets forced into buying an extended warranty by the car dealer, as a "requirement by the bank or you won't get the car loan." This, of course is fraud, as we call it, the Forced Warranty Scam. But so many people with bad credit are victims of this very common violation of the Truth In Lending Act, which we profile extensively in our articles on the site.
  5. They buy their warranty in haste, spur of the moment, while in the car dealership finance office, and didn't have a chance to research it. They also believe every lie, error, and non-truth the salesperson tells them, and they never of course thought to read a contract for the warranty before signing. Now they have no idea what they just bought. The warranty company's marketing slick sheet is not a contract, and of course doesn't really tell you what is covered. If they don't show you a contract for you to read before buying to protect your rights, don't buy it, no exceptions. This devastates many car buyers out there, who end up buying some useless diluted warranty, purchased at the dealership with inflated price, instead of getting quotes online from reputable companies like CARCHEX and WarrantyDirect, and avoiding the middle man.

"Experts" Without a Clue Tell You Extended Warranties are Bad

Be aware that you have some really uneducated "experts" and reporters out there writing articles about how extended warranties are a waste of money. They think they are saving you money with their thinly researched advice. Their fatally incorrect advice might cause people to forgo buying an extended warranty when it might save them a lot money in the long term. Their advice ends up leaving people who can least afford an unexpected repair bill at risk. One expensive repair can leave you in a devastating financial position.

Wear & Tear vs Mechanical Breakdown Failures

This is the #1 reason for warranty claim rejections. After years of analyzing car owner complaints with warranties, and working as a liaison between several companies and their customers, I can tell you the number one reason people have their claims denied is they bought the wrong type of warranty for their car. Now when they get denied, they go online to forums and complain how they got ripped off. So let's settle this argument once and for all. I have compiled my list for you below of common errors that car owners make. Extended warranties are perfectly fine as long as you buy the proper warranty for you and your vehicle and research the warranty company first. You heard that here from me first.

The companies that I recommend, CARCHEX and WarrantyDirect, will work with you and make sure that you fully understand the coverage you are purchasing.

Not Sure If You Should Buy an Extended Warranty?

First, here's a litmus test to determine if you really need to buy an extended warranty for your vehicle. Ask yourself these simple questions:

"If my transmission breaks down tomorrow and the repair is $3,000 can I afford it?
Will I miss work and not get paid while the repair is being done and have no rental car to take me to work?
Am I totally screwed?"

Dear totally screwed: Yes, you are! But the good news is now that you are here and getting educated, you can avoid some of the common errors that car owners make.

Another Reason For Buying a Car Warranty

If you have kids in college, do you really want them worrying about a devastating repair bill hundreds of miles from home, and no way to pay for it? Do you want your daughter stranded in the middle of nowhere on her way home for vacation? After reading our extended warranty buying guide you will be a well educated buyer, who will know how to protect your expensive investment and give yourself peace of mind.

So yes, extended warranties are good, they do make sense, as long as you do the research, and buy the right type of warranty. My suggestion for you is a 7 year exclusionary warranty that covers wear and tear, has $0 deductible, so that you never have to pay out of pocket for any repairs. Many of the high end policies cover towing, car rental, and hotel stays.

Make sure you read our chapter on extended warranties mentioned above before you even think about shopping for one. Good luck!

Author Jeff Ostroff

About The Author: Jeff Ostroff is a consumer advocate, Founding Editor and CEO of CarBuyingTips.com overseeing a team of expert authors. For over 17 years, he's been the recognized authority on car buying, leasing, used cars and financing. He developed sophisticated spreadsheet tools to help consumers negotiate on a level playing field. He is a widely sought out guru, cited by the press for his expertise in savvy car buying and preventing consumer scams. Jeff has been quoted in CNN, Bloomberg, MSNBC, Wall street Journal, Consumer Reports, NY Times, Reader's Digest, and many live call in radio shows. He has covered the automotive space since 1997. Jeff also has extensive experience and expertise in selling used cars for clients on eBay and Craigslist. Connect with Jeff via Email, Twitter or on Google+.

CarBuyingTips.com has affiliate referral relationships with multiple web sites. This means that for many of the links you see on this site, we are paid referral fees for leads generated from visitors that click on links or fill out forms on this site. In some cases we are paid a commission for a purchase made on a site that is linked to from CarBuyingTips.com. Please view our advertising policy page for more information.