We have all had sales people try to sell us extended warranties, typically on electronics or appliances. Some of our Grand Rapids customers bought used vehicles and received the same sales pitch. The automotive ‘extended warranty’ is nothing more than an insurance policy. An average on how much the auto insurance industry pays back on every dollar they collect, is roughly $.98, or 98% payback. The used car extended warranty policies that people have purchased have, by my own experience of dealing with them for almost 40 years, much lower. Used car extended warranties are some of the worst ways to spend your money, in my opinion. With an insurance company, there is some recourse if a consumer feels that he or she has not been fairly compensated in the event of a loss. With the used car extended warranty, the consumer has nothing but a 1-800 number to call and state the loss. If the company agrees the consumer has a claim, THEY decide how much is covered, what kind of parts, how much they will pay in labor, etc. This isn’t different than a traditional insurance company EXCEPT they will deny virtually everything. The fine print is where the devil lives. Almost anything that realistically can break, wear out, or fail before its normal time is not covered, and if you don’t agree with what they have decided, tough luck. There is no regulatory agency like a traditional insurance company has; consumers are just left out in the cold. We currently have a 2007 Malibu, recently purchased in Grand Rapids, worth according to Kelly Blue Book, $7,600. The used car extended warranty contract we have from the customer states he paid $1,995 for the warranty. That’s 38% of the value of the car. Good grief! We all know the warranty can financed with the purchase price of the car, so realistically the warranty was substantially more at the end of the loan. Our customer will be lucky if the warranty company pays out $500 on the vehicle which has transmission problems-which are soon to be denied by the company. In closing, NEVER buy a used car extended warranty. Get a used vehicle inspection professionally done prior to purchase and save your money in an auto repair fund for the inevitable.
Keep your wheels on the road. Eric.
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