Top 5 Extended Car Extended Warranty Buying Mistakes
Published January 11, 2012 | Updated March 8, 2019
Extended warranty mistakes revealed, why they are made, how to avoid them
Extended car warranties over the previous decades are the most controversial topic here on CarBuyingTips.com and on online customer complaint web sites. There are conspiracy theory people who are dead set against any and all extended warranties (also known as vehicle service agreements or VSA) for no reason. Some extended warranty claims submitted by customers are rejected just like with many insurers when you file a damage claim
Some uninformed consumers think that all warranties are useless no matter what, when in fact their submitted claims were rejected for legitimate reasons itemized in the vehicle service contract. There have also been high profile warranty crash and burn scams over the years, like Warranty Gold and US Fidelis, both companies which ripped off consumers with millions of losses.
Sure, there are bad apples out there, just like any business, but we show you how to research and avoid a bad warranty contract. Our team of consumer advocate experts has decades of experience researching all the issues customers have with warranties, and the contract verbiage, and rejected claims. Our research will help you navigate the rough wilderness of car shopping and related car warranty issues.
We have worked with top level management of many warranty companies to devlop the a comprehensive teach guide for consumers How To Buy An Auto Extended Warranty & Avoid Scams that teaches you all about vehicle extended warranties.
Our guide will show you how the proper sanity checks you need to run before buy extended warranties for cars, including scams to look out for from both the car salesperson and the warranty company. Most useful for you, our guide shows you how to avoid getting your submitted claims rejected and how to research a warranty company's background, Better Business Bureau rating, who their backup insurance is, and their ability to pay warranty claims.
We also cover where to get less expensive warranty quotes that are not saddled with finance manager commissions, and reviews of the quality warranty companies to use, and we explain everything you need to know about purchasing extended car warranties in our other guides. There's nothing on the Internet that comes close to the authoritative research in our guide or reveals more scams than we warn you of, based on decades of our experience and research.
Top 5 Warranty Buying Mistakes
Buying the wrong warranty coverage type: The cheaper warranties many shoppers buy to save a few dollars only cover mechanical breakdown failures, but they do not cover wear and tear failures. This is the top reason given for submitted warranty claims being rejected by the extended warranty plan administrator. Your own failure in knowing what is not covered in your contract agreement, and not knowing the difference between wear and tear and mechanical breakdown coverage can cost you thousands in rejected claims. Once your vehicle manufacturer's warranty expires, you 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 wear and tear failure mode, along with your submitted claim gets rejected under a standard mechanical breakdown warranty. This issue is avoidable if you simply choose the right vehicle service contract. Naturally the buyer won't take the blame for failing to perform their due diligence and research company prior to purchase. Based on our years of research into this topic, these same uninformed buyers are then 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, when the issue is really root caused to their own lack of research to purchase the correct warranty. Because of these scenarios, this industry does have a higher than normal level of complaints with entities such as the Better Business Bureau. Even the best company will have a few complaints, and our recommendations are that if the company has a BBB Rating of "A" or "B" they should be trustworthy. However, is you see BBB grades of "D" or "F", you should steer clear of those companies, as they have a BBB track record of not answering complaints.
Purchase decision made by lowest price alone: Consumers usually buy the auto extended warranty on price alone without reading the contract first. They don't compare car dealer warranty prices to the prices of reputable online extended warranty companies. Most importantly they don't compare the features or investigate the background of 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, not the fake slick sheet coverage that the car dealership finance manager lies to you about. 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. Car salespeople like to sell you these plans because they are cheaper, and give them a nice profit margin, and they look good on slick sheets where they can show you 100 items covered. However, they fail to inform you that there are hundreds more parts which are not covered. But with an exclusionary coverage plan, if your failure is not on the small list of exclusionary "what is not covered" items, the plan administrator will have to cover your claim.
Pre-Existing Failures on vehicle being covered: The buyer purchases their used car extended warranty on a vehicle with a pre-existing 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 warranty administrator claims center, the customer gets angry and goes online spouting off about 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 you 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, based on lack of scheduled maintenance.
Forced into an extended warranty by an unscrupulous car dealer: Car shoppers, particularly those with bad credit, are often illegally 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, so be sure to read our famous Top 10 Car Dealer Scams list, with details on this Forced Warranty Scam, and how to avoid it. 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 other consumer advocate guides on the site to protect you from being ripped off.
Purchasing in haste with no prior research: Most shoppers are not savvy at all, buying their extended warranty in haste, spur of the moment, while in the car dealership finance office, they just want to finish up the sales paperwork, and get home with their new car, and they didn't have a chance to research it. They also believe every lie, every error, and every incorrect "fact" which the salesperson tells them. You know they never thought to read the contract for the vehicle 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, and more importantly, what is excluded from coverage. If they refuse to show you a contract for you to read to protect your rights before buying, then don't buy that car warranty no matter what, no exceptions. Even if the sales manager tells you they are out of contracts, they should not be selling you a contract without the contract. If they lie and tell you the contract comes later, then do not buy. The contract comes now or you don't purchase the extended warranty from them. This devastates many car buyers out there, who end up buying some useless diluted car warranty, purchased at the dealership with inflated price, instead of getting quotes online from reputable companies like CARCHEX, and avoiding paying additional over-padded commissions to a middle man car dealership.
"Experts" Without a Clue Tell You All Extended Warranties are Bad
Be aware that you have some really uneducated "experts" and $10 a page freelance writers out there cranking out articles about how extended warranties are a waste of money. They pretend 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 our years of analyzing car owner complaints with warranty companies and plan administrators and serving as a liaison between several companies and their customers, I can tell you with all our combined CarBuyingTips.com expertise that the number one reason people have their claims denied is they bought the wrong type of warranty for their car. Now when their submitted claims are denied, consumers go online to forums and complain how they got ripped off. So, let's settle this argument once and for all. We have compiled our list for you below of common errors that car owners make. Extended warranties are perfectly fine if you buy the proper warranty for you and your vehicle and research the warranty company first. You've been hearing that hear on CarbuyingTips.com since 1999, you heard it here from us first, where we've been pounding the tables trying to get consumers to use common sense before buying.
The companies that I recommend, CARCHEX 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 in trouble with this repair?"
Yes, you are in trouble, but the good news is now that you are here and receiving proper education, 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.
Yes, extended warranties are good, some not so 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 better warranty packages 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. Now you are an educated consumer, ready to make your extended warranty purchase.
About The Author: Jeff Ostroff
A lifelong consumer advocate with over 20 years of unparalleled expertise, Jeff is the Founder, CEO and Editor-In-Chief of CarBuyingTips.com. As chief consumer advocate, he oversees a team of experts who cover all aspects of buying and selling new and used cars including leasing and financing.
For decades, Jeff has been the recognized authority on vehicle purchasing, sought out often by the media for his decades of experience and commentary, for live call-in business radio talk shows and is cited often by the press for his expertise in savvy car shopping methods and preventing consumer scams and online fraud. Jeff has been quoted in: CNN, MSNBC, Forbes, New York Times, Consumer Reports, Wall Street Journal and many more.