You’ve just sent the last 3 hours negotiating to buy your shiny new car, truck or SUV. You’re exhausted and ready to just go home! But wait! You still have to face the dreaded Finance Guy! They are going to try and sell us something we don’t need!
Relax. You’re about to learn to make an educated decision about whether or not you want the extra coverage.
S/he’s just doing their job
Sure, Finance Managers are paid for selling extra products and services. It’s their job, just like yours. Everyone gets paid for providing a product of service. But there is a way to determine if a Vehicle Service Contract is right for you and your driving habits. A good Finance Manager will explain the limitations of the manufacturer’s warranty. That’s why the exact term is Limited Manufacturer’s Warranty, it has limitations. It doesn’t cover everything (but should cover 99% of failures) There are certain responsibilities that you the owner have to ensure the manufacturer will cover the cost of labor and parts. What are those responsibilities? Simply, you have to maintain the vehicle, you have to change the oil. You can’t simply put gas in it and drive it. Think of it as if you take care of the vehicle, the manufacturer will take care of the parts and labor should the failure occur during normal driving conditions.
Do I really need this?
This question can only be answered after several other questions are answered about your unique driving habits. How long do you usually own a vehicle? Not how long you intend to own this particular vehicle. Is the vehicle new or used? Does it have any remaining manufacturer’s warranty and just how much is actually remaining? How many miles per year do you drive? Is the mileage going to increase or decrease because of your job? Do I live in an extreme climate condition that may cause premature failures? What I mean by this do I live in an extreme heat or cold climate or an extremely dusty environment? Not many people realize that dust is an extremely good conductor of electricity and can cause shorts.
The acceptable industry standard suggests the average American drives 13,476 miles a year. That means with a standard new car warranty of 3 year or 36,000 miles, most people will be out of the manufacturer’s warranty in less than 3 years. If you’ve financed your car for 5 or 6 years, you will be responsible for your repairs for 2.5 to 3.5 years before you even satisfy the loan! Even with the industry’s best warranty of 5 years or 60,000 miles, your warranty will expire in 4.4 years! And this is just average driving.
Most drivers do not realize that once the manufacturer’s warranty expires, they are responsible for 100% of the repair costs!!
Now this point is moot if you trade your vehicle in before the warranty expires.
Is it worth the cost?
Did you know that 85% of vehicle owners do not have the cash readily available to pay the average $1,000 repair bill? They either have to utilize a credit card (and pay the subsequent interest charges…and I don’t need to remind you of just how high they are), borrow the money or forgo the repairs. Wouldn’t it make more sense to have a Vehicle Service Contract and pay the $100 deductible?
The retail cost of a Vehicle Service Contract varies on length of time, make and model of the vehicle and the cost of parts and labor. If you don’t allow the dealer to take the shirt off your back and are financing your purchase, adding a Vehicle Service Contract should only increase your monthly payment $16-28 per month depending on your interest rate.
Now you’re probably asking how do I get the best possible deal and avoid potentially overpaying? If you’ve determined that your driving habits (miles per year or length of time you plan on owning this vehicle), or don’t have the money to pay for repairs, or simply like the peace of mind of having a Vehicle Service Contract buy it! But in a couple moments you’ll get the insiders scoop!
What’s the best coverage?
Whether you’re buying a new or pre-owned vehicle, and you’re going to exceed the manufacturer’s warranty in either time or mileage (remember it’s whichever comes first!), there is a plan to meet your needs.
If you’re buying new, buy the “wrap” policy. This coverage mirrors the manufacturer’s Limited Power Train warranty and literally extends the basic coverage to match the terms of the Power train coverage. Now a note on Power Train warranties. Don’t be fooled. Limited Manufacturer’s Power Train Warranties covers only the internally lubricated parts. Basically, for a failure to be covered, the part needs to touch oil, transmission fluid or drive train grease. If it doesn’t, it’s not going to be covered. It’s designed to cover parts that aren’t supposed to break!
Now if you’re buying a pre-owned vehicle, simply purchase a contract that matches your driving habits and length of time you usually keep a vehicle. Remember, that the older the vehicle, the more likely something is going to go wrong. It’s not if, it’s when!!
Regardless of the length of time you choose, be sure to choose the coverage that is either exclusionary (lists parts not covered) or if a listed coverage, be sure to review the list of parts that are covered. The last thing you want is to pay for coverage and find out later, your failure isn’t covered. There’s nothing more frustrating and annoying.
How do I get the best deal?
Remember earlier I mentioned that Finance Managers are paid by selling you these contracts and other products or services? Well, they would rather make a minimum profit as opposed to not making a sale at all. First of all, ask specifically how much you’re paying for the contract. Ask how much your payments are with and without the contract. Finance Managers are required by Federal Guidelines to disclose the cost and quote payments as requested by you. If your payments increase $35-50, you’re overpaying. Offer to pay $100 over cost and don’t be afraid to ask to see what the cost actually is and be sure to verify that cost before you sign the contract. Again, although they won’t be happy about not making a huge profit, but in the end they’ll be thankful they sold a contract as opposed to coming up empty.
One final thought
Most coverage’s include additional benefits for the term of your contract. This includes services such as limited mileage towing to a repair facility, road side service to help change a flat tire or deliver fuel (you have to pay for the fuel) or trip interruption benefits and rental reimbursement. Trip interruption will provide reimbursement for lodging and meal expenses if a failure occurs more than 100 miles from home.
Be sure the coverage you do finally choose, that your repairs can be completed at any repair facility that employs ASE (Automotive Service Excellence) Certified Technicians and this is non-reimbursable policy. What I mean by this is that the repair facility is paid directly and you are only responsible for your deductible.
One last thing. Don’t place too much concern that you might not use the entire amount of the policy. If you trade, sell or lose your vehicle to a total loss, the remaining unused pro-rated portion can be transferred to another owner, used as a down payment on your next purchase (if purchased at the same dealership) or returned to you as cash. Think of it as a future savings plan while you’re protected against a mechanical failure while you own your shiny new vehicle.
I hope this helps you make an informed decision the next time your purchase a new or pre-owned vehicle and are presented with the opportunity to purchase a Vehicle Service Contract.
Happy car shopping!