Most people, when purchasing a used car approach the process with a feeling of anxiety. They are unsure if they are buying the car the little old lady drove to church on Sundays, or if the car they are buying was someone else’s headache. To ease that fear, many people will purchase a used car warranty. This, they feel, will protect them in the event there is really something wrong with the car. The dealer showed them how much is covered under the warranty, the power train, electrical system, engine and other parts may be "covered". While it is true that these items may be "covered", be sure to read the fine print. There may even be several warranties to choose from, and even if you choose the one with the most "parts" covered, you still may be ripped-off.

While our office never recommends that consumers purchase a used car without a warranty, there is yet another fraud being perpetrated upon the public. Anyone who has ever purchased a used car with a dealer’s warranty, and then tried to put in a claim, is probably familiar with how limited and useless these warranties really are.

The scenario is this: Consumer, let’s call her "Mary", purchases a used car, which is no longer under the Manufacturer’s original warranty. The dealer’s finance person gets Mary after she finishes negotiating the price. This is the person she sees to sign the contract. The finance person will attempt to then sell her a number of things, such as a Lojack system, maybe rust-proofing, and the all-important used car warranty. At this point, Mary has been at the dealership for the last 2 or 3 hours at least. She is hungry and tired, and just wants to get into her new used car and go home. The finance person tells her, "Look, you need to protect your investment. If this car breaks down and you don’t have a warranty, you could be looking at big bucks for repairs. If you buy this warranty, we can add it to the payments now, and it will only cost you another $10 or $15 or $25 a month." Mary thinks, "Well, I’ve already got this big payment, I can handle another $10 or $15 or $25. I can do this quickly and get out of here and go home." And Mary says okay.

Sound familiar? There are a number of problems with this scenario. First, the dealer will pay the insurance company roughly anywhere from $200 to about $500 for the warranty. The warranty will then cost you, the consumer, anywhere from $895.00 to about $1895 for the average vehicle, possibly even higher. Then, to add insult to injury, if you add this amount to the price of the car, you are paying interest for your warranty as well. If you are one of the consumers who are paying 15% interest over a four-year period for a used car loan, and $895.00 for a warranty, you are really paying approximately $1200 for the total cost of the warranty. If you paid $1,295 for the warranty, at 17% interest over four years, the total cost of the warranty is a whopping $1795.

Then your problems really begin. A few weeks later, your car starts making some noise. You bring it to the dealer, and the service department tells you that your power steering hoses are worn out, and it’s going to cost $500.00 for repairs. You say, "Well, what about this warranty?" The dealer says, "Look at the fine print. Your power steering is covered, but the hoses are excluded. It’s a wear and tear item." You shake your head and pull out your credit card (19.9% interest?).

A few months later, the button that moves your electronic seat doesn’t work. You take the car to the dealer, and, well, here we go again. $350.00. A short time later the transmission starts to leak. Seals are not covered. This goes on and on and on, with the dealer all the time telling you that you have a good warranty, but used car warranties just don’t handle all the "wear and tear" items. You begin to wonder why you ever agreed to pay for this used car warranty in the first place. Now, you’ve submitted three claims and none of them have been covered.

You’ve been the victim of another type of dealer fraud. Most warranties are not even shown to you before you buy them. You only get to see a little brochure that contains misleading wording about what is covered, such as "the power steering system, transmission, electrical, and power train". There may be some small print that says, "wear and tear items excluded", or something similar, yet they never really define those wear and tear items and other exclusions, until after you receive the warranty in the mail from the insurance company.
Generally speaking, unless the used car warranty is one that was issued by the manufacturer of the vehicle, it is usually issued by an insurance company. Many times, the used car warranty companies are owned, in whole or in part, by the dealership from which you are buying the warranty. These insurance or warranty companies do their best not to pay claims, so it is in your best interests, if you are purchasing a used car, to request a copy of the warranty policy before you purchase it, or alternatively, to request that any used car warranty you purchase be one which is issued by the manufacturer.

And last but not least, most consumers completely forget that when they sell their used car, and the warranty has not yet expired, they are eligible for a refund for the unused portion of the warranty. The consumer should notify both the insurance company that issued the warranty and the selling dealer that they are requesting a refund. Typically, the consumer will not get any response from the dealer, and will have to follow up for this at least once or twice, and possibly threaten a small claims suit. Generally, persistence pays off, and eventually the dealer will refund the unused portion of the warranty.