Extended Auto Warranties | What You Need to Know

Over the last few years, car sales have sky rocketed. The assumption is that this increase in sales is the result of consumers upgrading cars they held onto when the economy was unpredictable. With so many consumers buying new vehicles, questions have arisen as to what to do when that vehicle reaches the end of its warranty. Should the consumer buy another new car (fine if you can afford to do so)? Or is it better to choose the more cost-effective option, which is to purchase an extended warranty or a service contract?

Choosing the Right Plan

Once a consumer’s warranty period has ended, they are responsible for repairs. While it’s true that cars today are lasting longer than they used to, they are also more complicated and more expensive to work on. Thus, many suggest that an extended warranty – something you buy at the same time as the car – is a wise decision. This extended warranty kicks in once the manufacturer’s warranty has expired.

From bumper-to-bumper to major power-train problems, it’s important to note that extended warranties are not all the same – neither are the extended warranty companies.Some extended warranties are sold by third parties, and some are actually sold by brokers. Before you plan, its crucial that you take some time to do your research. Experts recommend looking for a company with $100 million in assets. The company should also have an “A” rating from A.M. Best Co. Ratings.

Some extended warranties are going to be better than others. The “right” contract is one that fits your financial situation, your car and what you use it for. You won’t necessarily need the most expensive plan if your car is in great condition, your finances are tight and you have other means of transportation. On the other hand, if your car is incredibly expensive to maintain and you need it to drive to work every day, it might be wiser to choose the more expensive plan.

Red Flags

As you consider the warranty, make sure you read through the contract carefully. Beware of the following red flags:

  • A waiting period before your coverage begins
  • Excessive deductibles (there should only be one per visit)
  • Unreasonable coverage limits

Solutions for the Extended Warranty Company

Consumers are not the only victim to fraudulent extended warranty companies. Other, honest extended warranty companies suffer as well. The large number of extended warranty scams hurts the industry as a whole. If you own or are starting an extended warranty company, consider what a high-risk provider like eMerchantBroker can do for you. If traditional providers have turned you away for business funding or payment processing services, EMB can help.

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