How To Protect Your Used Car
By Tom Catuosco
When you purchase a brand new car, it is covered under a warranty backed by the manufacturer. A new car buyer can feel confident that if something goes wrong with the car during the warranty period, the problem will be fixed by the manufacturer at no cost. What about used cars? Can used car buyers get coverage to protect against unexpected repair bills? Yes, they can. Used car buyers can purchase a couple different types of warranties. Here are some things to consider when purchasing a warranty for a used car.
CPO Warranty
Buyers who purchase a used car from a franchised dealer may have the option of buying a “certified pre-owned” vehicle. CPO means the car goes through a thorough inspection to ensure it meets the manufacturer's standards as Certified Pre-Owned. A car sold as a CPO vehicle will come with a manufacturer backed CPO warranty. A CPO warranty is often an extended version of the warranty the car came with when it was brand new, though the exact coverage can vary and coverage may not be as comprehensive as the original new car warranty.
3rd Party Extended Warranty
Extended Warranties, also known as Extended Service Contracts, are additional coverage provided by third party companies for cars that are no longer covered under the original manufacturer's warranty. Extended Warranties can be purchased from a warranty company directly or when purchasing a used car from an independent used car dealer who may also offer warranties. There are many different companies offering extended warranties at varying prices and coverage levels. Some are very reputable and offer great coverage. Others may have a checkered reputation. You should do your homework on an Extended Warranty Company before you buy to make sure it’s one of the good ones.
Eligibility - Used cars have to meet certain requirements in order to be eligible for a warranty. For a car to be eligible for a CPO warranty, the car must be a CPO vehicle sold by one of the manufacturer franchised dealerships. In addition to meeting the manufacturer's standards for vehicle condition, the car will have to be under a certain age and milage...say no more than 5 years old and under 50,000 miles. The age and mileage cutoff varies from manufacturer to manufacturer.
3rd party extended warranties are less stringent in their requirements to cover a car, so you have some flexibility if the car you want to protect is higher milage or a bit older than a CPO car. You can get warranty coverage for a used car as old as 10 model years and 75K or more miles depending on the plan you choose.
What’s Covered by the Warranty? - CPO warranties generally cover the same things that were covered under the car’s original manufacturer’s warranty. 3rd party extended warranties offer all different levels of coverage depending on the plan you choose and pay for. A very basic plan may only cover drivetrain components (engine, transmission, etc…), while other higher level plans can be purchased to cover all the other systems in the car.
Most warranties use “named component coverage” to let you know exactly what is covered by the plan. This means a car component that is covered by the warranty will be explicitly mentioned in the contract. If a component isn’t listed, it isn’t covered. You can also find “exclusionary coverage” plans. Exclusionary coverage will have a list of components that are not covered by the warranty, and anything not specifically excluded in the contract will be covered. You should carefully review any warranty before signing a contract to make sure it’s covering everything you need. Note that warranties will not cover “consumables” such as brake pads, and tires. These components are designed to wear out and be replaced regularly.
In addition to repairs, many CPO and 3rd party extended warranties also offer benefits such as towing and roadside assistance in the event your car breaks down or runs out of gas. Some warranties offer rental car coverage while your car is being repaired. These benefits will depend on your specific warranty.
Deductibles - Warranty plans often have deductibles. Just like other forms of insurance (that’s basically what an extended warranty is) you may be required to pay a set amount of money out of pocket each time you use the warranty. This is the deductible. While some plans don’t have deductibles, most do. There are two types of deductibles - Per Visit Deductibles and Per Repair Deductibles.
Per visit deductible means you only pay the deductible one time per visit to the mechanic under the warranty. So if your deductible is $100, you only pay $100 out of pocket no matter how many repairs are made during that visit.
Per Repair means you will pay the deductible for each thing being repaired. If you have four parts that need fixing, you’ll pay the deductible four times. That means $400 out of pocket.
Where to get Repaired - Warranties vary on where you can have repair work done under the warranty. CPO warranties will require you to have the work done at a manufacturer’s franchised dealer service department. 3rd party warranties have a wider range of options depending on the company and plan you purchase. Some warranty companies may require you to have the repairs done only at shops on an approved list of mechanics, while other warranties will permit you to take the car to any shop you choose as long as it’s a properly licensed facility.
Payment to Repair Shop - Once repairs are made to your car, the shop will need to get paid. As with everything else, how the shop gets paid depends on the type of warranty you have. Manufacturer backed CPO warranties will pay the franchised dealer service shop directly. With third party warranty companies, some will pay the shop directly for the repairs, while others may require you to pay the shop out of pocket and submit receipts to the warranty company for reimbursement. If you can, try to choose a warranty that will pay the shop directly.
As you can see, there are various warranty coverage options available when you purchase a used car. It can be great insurance that saves you money in the event of unforeseen problems. Just make sure you carefully review any plan before you purchase to make sure it’s the right one for your budget and needs.