Are Vehicle Protection Plans Worth It?

After you agree on the purchase price for a car at a car dealership, the next step is going to the finance and insurance office. During this round of (intense) negotiations, one of the things you will discuss is vehicle protection plans. These extended warranties protect your vehicle when the manufacturer warranty expires. Should you purchase a vehicle protection plan from the dealership?

What Are Vehicle Protection Plans?

Vehicle protection plans go by several names including extended car warranties, bumper-to-bumper warranties, and repair insurance. You can buy these plans from your dealership that partner with a third-party warranty provider. Some plans are even offered by the manufacturer. The manufacturer plans are typically more comprehensive and will reimburse you for more repairs.

Generally, the plans will offer similar coverage for necessary repairs for the engine, transmission, drive axles, electrical, and fuel systems for the next five years or 100,000 miles (for example).

Dealerships will often offer plans with different coverage amounts. For example, you might be able to choose from a bronze, silver, or gold plan. Cheaper plans cover fewer repair categories and tend to have a higher deductible. These plans might also offer additional add-on protections such as paint protection or parts that are considered “normal wear and tear.”

New and used car dealerships usually offer vehicle protection plans. However, you can also purchase these plans when you buy a car on Craigslist or when the original manufacturer warranty is about to expire.

Read the “Fine Print”

The negotiations in the dealership’s finance and insurance office can be more intense than negotiating the sales price of the vehicle. You might feel pressured to agree to a vehicle protection plan without adequately reading the terms and conditions. Do take a few minutes to read the terms and conditions of the protection plan.

Excluded Repairs

When reading the “fine print,” pay specific attention to what repairs are covered by the plan. The salesman might say that a plan will cover comprehensive repairs to the engine or transmission, but, that might not include repairs to the clutch assembly or flywheel.

Cheaper insurance plans might only cover major mechanical breakdowns. Depending on the price of the vehicle and how many plans you drive

Deductibles

You also need to see what the per repair deductible is. If the deductible is almost as high as the potential repair costs, it might not be worth purchasing the plan either. Plus, you might even be responsible for all labor costs, even if they exceed the deductible.

Designated Repair Facilities

You most likely won’t be able to take your vehicle to just any repair facility. The warranty provider often has a network of repair facilities that you will need to visit if you want to be reimbursed for the qualified repairs. The terms and conditions probably won’t list the network providers. However, the dealer might know of or even be a part of the network themselves.

Cancellation Policy

Because you are in a hurry to finish the buying process, you might decide to sign-up for the policy because it is affordable or you have the option to cancel later. Before signing on the dotted line, be sure to read the cancellation policy. The warranty provider often only allows up to two weeks to cancel and there might be a cancellation fee.

If you decide you no longer want the policy after the “trial period,” you will have to forfeit a significant portion of the upfront payment.

It’s not uncommon to signup for a plan and to return to the dealership and cancel the vehicle protection plan within the first 48 to 72 hours. Or, if you initially say no in the showroom, most dealerships will be happy to offer you the warranty a few days later. After all, it’s additional income for them as they earn a referral fee for each add-on purchased in the back office.

Compare Vehicle Protection Plans

Not every vehicle protection plan is the same. There are several different companies to choose from and you don’t have to go with the one being pushed by the dealership. Chances are you could buy the same car from another dealer and they would offer extended warranty from a different provider.

Check With Your Car Insurance Provider

Your car insurance provider might offer similar extended warranty benefits or partner with a third-party company. This can be a great way to compare prices. It’s not unusual for the protection plan offered by your car insurance company to have zero deductible. Allowing you to save money when you buy the plan and also each time you might have to use the plan.

Compare Online Quotes

You can also get individual quotes from the various warranty providers online. Simply Google “vehicle protection plans” and you will get a variety of companies that provide plans. By getting quotes from each company, you can make a decision in minutes without being pressured by the dealership salesman.

And, you will get a better quote price when there is still more time remaining on the original manufacturer warranty. To get the best rates, you might have to apply at least 1,000 miles or one month before the original warranty expires.

Analyze Your Financial Needs

Looking at your financial needs can also help determine if you need the extended warranty for your car.  Paying a small fee upfront is cheaper than paying for expensive repairs later. If you cannot presently afford a new transmission or engine, it might make financial sense to go with the warranty.

If you have extra money in your emergency fund or can set aside half of the money you would pay for the extended warranty for unexpected repairs, that can also be a cheaper option than not using the warranty you paid big money for.

You Might Not Use Your Extended Warranty

Also, only half of the people that purchased a vehicle protection plan ever use it according to a 2016 Consumer Reports study. You are most likely going to use it in years two through five of ownership.

If you have never had similar repairs completed before like flat tires or an inoperable transmission, it might be likely that you won’t need the extended warranty for this car.

How Soon Will You Sell?

If you plan on selling your vehicle before the plan expires, it might not be worth buying it in the first place. The new buyer might not be willing to pay the remaining balance of the warranty unless there is a small account transfer fee like $50. This means you will earn even less money on a trade-in or sale along with the initial depreciation.

Summary

Do not feel obligated to purchase the vehicle protection plan offered by the dealership. Purchase if it has a very low deductible or will cover many repairs.  Before buying a car, it’s a good idea to check with your car insurance company first. Their plans might be a better option regarding coverage and price.  If nothing else, they are a good baseline to compare the dealer’s plan.

And, if you only plan to own the car for a few years or can afford expensive repairs, you can always skip the warranty altogether. After all, a warranty might not cover the mechanical repairs you will need to be performed in the future. Even better, you won’t need any unusual mechanical repairs completed at all outside of the original manufacturer’s warranty.