Not all car buyers are aware that the value of extended car warranties can vary greatly depending on who is offering the extended warranty. When you are ever considering if extended warranty is worth it for you, it is important to look into the administrator of the extended warranty and whether or not it is third party or manufacturer.
At the time of purchase, you may not have an option to choose between them and even if you do they will definitely be priced differently. This article discusses the important differences between who is offering the extended warranty and the ramifications behind each scenario. In general, if you were to read no further, manufacturer warranties are typically more desirable, but it does vary for each individual scenario.
Manufacturer Extended Warranty for Cars
Manufacturer extended car warranties are offered by the company who made the vehicle. For instance, Honda may offer you extended warranty if you are purchasing a Honda Civic from a Honda dealer. Unfortunately, manufacturer warranties are usually for newer cars or vehicles that have recently come off lease and being sold in the used car markets. This means that manufacturer warranties are harder to get the older the vehicle, as most leases are 3-5 years.
Manufacturer warranties are typically offered as a statement of confidence behind the reliability of their vehicle and extended warranties can be extremely lengthy if you are willing to pay upfront. The benefit behind manufacturer warranties is that a larger more reliable company is typically more willing to pay up when the claim does come around. Instead of chasing a third party company who you have limited recourse on a borderline warranty claim, manufacturers are typically willing to pay out when repairs are required.
It is important to note that manufacturer warranties are on average very profitable for the company. So the average customer does end up getting negative expected value from the purchase of extended warranty. However this article isn’t to discuss whether or not you should purchase extended warranty. Due to its profitability, customers often don’t realize that manufacturer extended warranty is a negotiable plan. The duration, cost and coverage is all negotiable prior to taking ownership of the vehicle. When you negotiate the terms more in your favor you increase the value of purchasing the extended warranty to potentially being a positive expected value decision. Positive extended value would mean that for every dollar placed in the extended warranty on average, you would get more than $1 back.
Manufacturer warranties, just like third party warranties, may have certain stipulations for the warranty to maintain its validity. It is important to read the fine print and look into the requirements such as where you are able to do your car maintenance. For instance, some warranties require you to do your maintenance at their own dealer, which is 3-4x the price of a local garage that does the same job. Some of these requirements for warranty validity may make the deal much colder. Once again these requirements may be negotiable.
Third Party Extended Warranty for Cars
While third party extended warranties are less reliable, they do offer more coverage and flexibility if you are purchasing an older vehicle. Even if the car being purchased is newer, you can always use third party warranty quotes to negotiate the manufacturer’s warranty down. Third Party warranties get a lot of bad reputation but not all warranty companies are looking to take advantage of you. At this stage it is very important to do individual due diligence and research on which company is offering the third party warranty.
During your research you should look into whether or not the third party warranty companies seem to honor their repair claims as well as how easy it was to qualify and complete a warranty repair claim. As you look into your third party warranty company, take into consideration that on the internet you will mostly hear complaints as the happy clients don’t typically post their experience online.
Negotiation is a very large part of purchasing extended warranty from a dealer. Car dealers can make anywhere from 30-50% of the extended warranty fee as their commission. This means that there is room to negotiate on your extended warranty or price of the car. Since they cannot adjust the price of the extended warranty as they are not the administrator of the warranty, they can however give you a discount on the car if you decide to purchase extended warranty.
Making a claim for a Third Party extended warranty company does vary quite a bit in difficulty and success. Like all warranties it is very important to read the fine print and take into consideration the type of warranty you are looking to purchase and the coverage it includes. We do recommend an inclusionary style warranty which lists the items that are covered so you know where you stand on the warranty and what you are paying for.
Which Extended Warranty to Purchase From
Manufacturer warranties are definitely preferred to third party, but extended warranties these days are not an instant decline anymore. As always, whether or not extended warranty is a good idea does vary for each scenario. However, in all cases it is important to do your own individual due diligence and figure out which company and which solution best fits your situation.