When you purchase a new car, chances are that you might feel pressure to buy an extended warranty especially if you plan on keeping the car for a long time. Depending on the car that you’re buying, the regular warranty for the car can expire within three to five years, so opting for an extended warranty after that could make all the sense in the world. On top of that, the finance manager might also tell you that you get a refund on it if you don’t want it or don’t use it, and while that’s technically true, there are some stipulations.
To buy, or not to buy, an extended warranty
Whether or not you should buy an extended warranty from the get-go is also the million-dollar question. We typically advise buying the warranty if you’re financing a German luxury vehicle like an Audi, BMW, or Mercedes-Benz as parts and service labor can be very expensive after the manufacturer’s warranty runs out. Most extended warranties can tack on an extra $1,200 to $3,000 on to the bottom line, but considering parts and labor for most German car repairs can easily exceed that amount, buying the extra warranty could make sense.
However, if you’re going with a more affordable car with more affordable repair costs, like a Honda, then it might not make sense. Consumer Reports once called extended warranties “an expensive gamble” because their 2013 survey showed that about 55% of customer that purchased the extended warranty never used it.
Here are some reasons to cancel the warranty agreement
If you do end up purchasing an extended warranty and decide that you’re probably not going to use it, then you can cancel it. Here are reasons that NerdWallet found as why many customer cancel the contract:
- Non-agreement: If the warranty was slipped into the new car contract without your knowledge. While most dealers are honest, this could happen sometimes.
- Cost: You decide that the extended warranty costs too much for your budget.
- Warranty exclusions: After reading the fine print and realizing that the warranty doesn’t cover everything, then you might decide that it’s not worth the extra cost.
- Postponement: If you eventually decide that you would rather not have the extended warranty and would rather keep your money for now.
Getting a refund
If you ultimately decide that you do want to get a refund for your extended warranty purchase, you can, although it might be at a prorated amount. However, if the warranty was factored into the loan, then your monthly payment will remain the same but the total (or prorated) amount of the loan will be deducted from the loan amount. USA Today noted these tips when it comes to getting a refund:
- Read the fine print: Keep the original contract with you and make sure to read the fine print on it. The print should tell you who to contact and if there is a cancellation fee. If anything, contact the finance manager that sold the warranty to you, although for a third-party company, you may have to call the company that provides the warranty.
- Remember to be firm and say “no”: If you talk to the finance manager, stand firm on your decision to cancel the contract and just say “no.” The warranty is part of their commission, so they may try to get you to keep it.
- Get everything in writing: Remember to make a copy of the original contract and get the cancellation form in writing to keep as a record in case you don’t get a refund.
- Follow up: In the end, make sure to follow up and ensure that the refund goes through.
There is still value in extended warranties
While extended warranties can sound like a pain through-and-through, from the decision to buy one to the decision to get a refund for it, they can be valuable in the right situation. Again, luxury cars can be pricey, and if you buy a used one and are offered the warranty, then we suggest taking it. However, in other cases, it might not be completely necessary, just remember to weigh your options the next time you’re sitting in the finance manager’s office