Buying and selling any product or service is easier than ever in the internet age, since it's possible to buy a used car with a few keystrokes and the click of a mouse.
But the ease of purchasing vehicles online is also accompanied by an ease which frauds may be committed, so prospective used car buyers have to be watchful for a host of used car scams that make the old sawdust-in-the-transmission trick seem quaint.
The most common scams associated with buying used cars are those related to car warranties or vehicle service contracts. Warranties are very important since they can prevent you from getting scammed when buying a used car, so understanding these types of contracts will assist consumers in avoiding shady companies wanting to scam them. Sadly, the car warranty industry has been long scarred by non-reputable businesses taking advantage of consumers just to get a quick sale.
To help you avoid scams, we’ll review the best steps you can take to buy used cars and car warranties. Like with any product purchase, buying a vehicle service contract is a personal choice that should be based on your individual financial portfolio, your driving habits, and the make, model, year and condition of your car.
WHAT IS A USED CAR WARRANTY?
A vehicle service contract (VSC) or used car warranty is a repair coverage that goes into effect after the factory warranty expires on a new or used car you’re looking to purchase. The name is a bit misleading since it really isn’t a warranty but a service contract provided by the original manufacturer (factory extended warranties) or by a third-party company (aftermarket warranty).
WHAT ARE THE TYPES OF CAR WARRANTY CONTRACTS?
Typically, car warranty providers offer three levels of service coverage plans:
- Powertrain – a basic plan that covers only the main generative components of your car.
- Inclusionary or Named Component – this is one step up from Powertrain since the car parts or systems covered are named in the contract. All others are excluded from coverage. The list of named components may vary by providers.
- Exclusionary – this is basically comprehensive coverage where the only car parts or systems excluded are the ones listed in the contract.
Note: most car warranties don’t cover the daily wear and tear on your vehicle.
HOW DO USED CAR WARRANTIES WORK?
Let’s go over a few key points on how these types of warranties work.
Types of Used Car Warranty Providers
Some VSCs are direct providers, meaning consumers work directly with one provider throughout the length of the contract, from the quoting process to scheduling repairs.
However, most car warranty companies are indirect providers, meaning that consumers will first work with one company when securing the contract, then work with other companies when processing claims and scheduling repairs.
Where Can I Purchase a Used Car Warranty?
Most likely you will be offered a used car warranty from a dealer when you purchase a used car. Dealerships usually partner with different providers, so be sure to ask them who the company is and request extra time to review the warranty contract before making a purchase.
Know that you don’t have to work with the dealer’s provider since you can purchase a warranty on your own. However, we encourage you to do your homework and review multiple used car warranty companies first before deciding.
Car Warranty Terms
The typical coverage period of an extended car warranty is five years, with full payments being made within the first 18 months of the plan. The warranty is really an alternative to having a dedicated savings account to cover any unwanted car repairs that may come up. Unfortunately, many of us don’t or can’t save enough for a rainy day car fund.
Note: be sure to check if the warranty is transferable to another owner or another vehicle.
Used Car Warranty Repairs
To use your used car warranty for repairs, consumers must take their vehicle to a licensed, participating mechanic shop or dealership. Some providers have a small number of participating shops while others have extensive national networks, making the process less stressful.
Aftermarket Parts on Your Vehicle
Most extended car warranty companies won’t cover what are known as “aftermarket parts”, that is, parts that are not made by the vehicle’s original manufacturer.
What to Look for in a Used Car Warranty Provider
Here is our list of factors that we recommend you review with each provider prior to purchasing a contract.
- Coverage & Price - Most companies will have at least three levels of coverage with varying prices. Make sure to look at additional options or benefits that are either covered in the plan price or that can be purchased.
- Financial Strength & Company Reputation - This is a crucial factor to check, since financial stability and reputation determine a company’s ability to pay claims.
- Customer Service Approach - Because this is a service contract, customer support is critical.
How to Avoid a Used Car Scam
Avoiding a used car scam goes hand in hand with deciding on whether or not you want to purchase a used car warranty. For instance, the age of the used vehicle you wish to purchase may disqualify extended warranty coverage, or, it can also determine what level of coverage you need.
Certified Pre-Owned (CPO) Cars and Associated Extended Car Warranties
A great option for consumers is the CPO car program, since it gives you an added level of security in knowing that the vehicle is insurable. CPO car warranties are factory-backed service contracts instead of aftermarket warranties.
If you don’t purchase a CBO vehicle, the most common used car scams are based on the misrepresentation and withholding of information. The distance and impersonality of internet shopping makes that possible.
Suppose a consumer sees photos of the exterior of an attractively-priced vehicle on eBay, Craigslist, or some other shopping site and never notices that there are no photos of the interior.
Or perhaps the would-be purchaser requests the seller to send photos of the inside of the vehicle, but the request is brushed off or met with excuses and an insistence that the buyer put down a deposit.
Not wanting to lose a good deal, the consumer makes a few impulsive clicks on his or her laptop and forwards a deposit.
Only later does the buyer discover that the interior of the vehicle is a mess of slashed upholstery, damaged controls and switches, cracked dashboard padding, and even missing seats.
Now what?
There are many variants of this scam, which are all based on the failure of the purchaser to perform due diligence when making sight-unseen purchases.
Disreputable sellers thrive on the reluctance or ignorance of bargain-hunters to look too closely into what seems like a great deal. In the case of used cars, fraud can be quite costly.
The best way for consumers to protect themselves is to go see the vehicle, size up the seller, and examine the title and registration documents. Ideally, this trip should be done in the company of an experienced mechanic.
There are now a number of companies that will perform this service for consumers who can't go to see for-sale vehicles themselves. They cost money, of course, but considering the size of the purchase and the potential for headaches down the road, it may be money well spent.
WHAT OTHER KINDS OF RIP-OFFS SHOULD CONSUMERS WATCH OUT FOR?
There are other dodgy transactions that used car purchasers should watch out for, rip-offs that are likely more prevalent than out-and-out robbery.
These involve the sale of cars with hidden defects - or as they're popularly called, lemons.
Image: A literal lemon automobile
Perhaps the car in question has been to the dealer a half dozen times in the last two years for a steering problem that never seems to get fixed. Or perhaps it has a recurring tendency to go out of alignment all too quickly.
The seller may not disclose those kind of hidden defects. And to be fair, some sellers may not even know about them, especially in cases where an internet seller is listing a vehicle for a family member or friend.
In those cases, there may be little you can do as a consumer before the transaction is completed. A careful pre-sale inspection will disclose a lot of potential problems, but it doesn’t offer a solid assurance that the vehicle will remain trouble-free.
To protect themselves from that kind of outcome, consumers might be well advised to purchase a used car warranty, but only after considering the vehicle’s age and condition. If you want to start shopping for warranties, our list of the top 10 car warranty companies is a great place to start.
In the end, purchasing a used car warranty might give you peace of mind that comes with knowing that, whenever you have to deal with unforeseen repair costs, your vehicle will be covered.