Once every few days, my mailbox contains an official-looking letter with a dire warning: My car’s warranty is about to expire, and if I don’t do something about it I’ll be on the hook for some major expenses that won’t be covered by my car’s standard warranty. The letter even has my car’s make, model and year as it tries to persuade me to shell out thousands for an “extended warranty.” Often, the letters refer to vehicles I no longer own, or which are still covered by the factory warranty.
Millions of Americans get these letters every day, along with telemarketing calls and emails. Unfortunately, many consumers take the bait and shell out big bucks to cover the cost of an extended warranty (it’s actually not a warranty at all, but a service contract). The only problem is that much of the time, these products are worthless. It’s important to note that these are different from extended service contracts often sold when you buy a new vehicle.
Statistically, buyers of third-party extended-warranty coverage haven’t been happy with their decisions. In late 2013, Consumer Reports surveyed vehicle owners who had purchased extended warranties (and whose original warranty coverage had run out). More than half reported they’d never used the warranty, despite paying an average of $1,200. And about three in four said they wouldn’t buy an extended warranty again.
Consumer complaints against third-party warranty companies have typically centered around non-coverage of most-likely-needed services, failure to cover for “pre-existing conditions,” expensive deductibles, lack of cancellation options and not being responsive to complaints or questions.
There have been several high-profile cases in which auto-warranty companies have been accused of deceptive practices. For example, in 2016 the Federal Trade Commission announced it was sending $4 million in refunds to consumers who bought policies from a company called My Car Solutions, after a 2010 complaint that the company had falsely claimed affiliation with auto dealers and manufacturers.
Here are a few other tips about third-party warranties:
No warranty covers everything. Even the best “bumper-to-bumper” warranties have limits on what they’ll cover, so be suspicious of claims to the contrary. And few warranties will cover damage due to excessive or improper use, or failure to perform basic maintenance (the limitations should be spelled out clearly in the fine print).
Make sure your warranty has a servicer. If you purchase an extended warranty without doing your homework, you may find yourself with no one to service it. Before you decide to buy, call your dealership or mechanic and ask whether they will accept the warranty.
Keep up with your car’s warranty requirements and deadlines. When you buy a new vehicle, there should be paperwork that clearly spells out the terms and limitations. Be aware of when the manufacturer’s warranty expires, and what it does and doesn’t cover.
Avoid scams. If you get a solicitation by mail, phone or email, be careful about responding. Some solicitations come from scammers, looking to get your personal information. Instead, contact your vehicle dealer to explore your options when your vehicle is nearing the end of its warranty.
Consider self-insuring for car repairs. Instead of putting money into a costly contract you’ll never use, get a reliable vehicle, service it as the manufacturer prescribes, and take what you would have spent on a service contract and set it aside in a bank account. That way, the money will be there if you need it later (and, if you don’t need it for repairs, you can use it for whatever you want).
For more advice on auto warranties, visit https://www.consumer.ftc.gov/articles/0054-auto-service-contracts-and-warranties.