Car shoppers are often pressured into buying an extended auto warranty — so-called because it kicks in to cover repairs after the new-car warranty expires — even though they don’t know their odds of using it or what it really costs.
For those with buyer’s remorse, there’s good news — most warranties can be canceled and you’ll get a prorated amount refunded.
The question then becomes, do I need that extended warranty I bought? And, if not, how do I get my money back?
‘An expensive gamble’
Extended warranties, often called “vehicle service contracts,” are sold by the finance and insurance manager while creating your sales contract. These warranties cover repair costs for varying lengths of time or miles driven after the manufacturer’s bumper-to-bumper warranty ends.
There are factory warranties, backed by the carmaker, with repairs made using original manufacturer parts, as well as third-party warranties that often require you to request a reimbursement and use after-market parts.
Consumer Reports, calling extended warranties “an expensive gamble,” found the median price for coverage was just over $1,200. The results of the 2013 survey, its most recent, showed that 55% of owners who purchased an extended warranty didn’t use it. And “those who did use it spent hundreds more for the coverage than they saved in repair costs,” on average, the survey found.
Andy Meisler, a retired journalist in Los Angeles, was offered an extended warranty when buying a Toyota Prius but he decided not to take that bet.
After driving the car for 10 years, Meisler said, “That car never needed more than routine maintenance. And our warranty-less state never cost us a bit of sleep.”
Reasons to cancel
Although an extended warranty is portrayed as protection against costly future repairs, here are a few scenarios that might make you decide to cancel it:
- Nonagreement: Some buyers discover that an extended warranty was slipped into their car financing contract without their knowledge or agreement. Then, the term of the loan is extended to hide the extra expense.
- Cost: Warranties are often sold as a per-month purchase; some buyers later total the cost of the warranty over the length of the contract and discover it’s much more expensive than they were led to believe.
- Exclusions: Extended warranties don’t cover everything that can go wrong. After reading the fine print, some car owners decide the coverage doesn’t justify the cost.
- Postponement: If you bought a new car, the extended warranty doesn’t kick in for at least three years. Some people would prefer to keep that money in their pocket — at least for now.
How to get your money back
You can cancel an extended warranty at any time and you’ll get a prorated refund for the unused portion of your policy. If the warranty was included in your loan, your car payment won’t drop, but you may pay off the car sooner after the refund is deducted from your balance.
Consider these tips to make the cancellation process as smooth as possible:
Read the fine print. Find the paperwork for your policy to see whom to contact and if there’s a cancellation fee. If you recently bought the extended warranty and don’t yet have the contract, call the finance manager who sold it to you. For third-party warranties, you might need to call or write a letter to the company.
Be firm. When you talk to the finance manager, keep in mind you’re taking away the commission they earned selling you the policy. It might be less confrontational, and faster, to contact the dealership’s office manager to process your request, suggests Used-Car-Warranty.com.
Just say “no.” When you call a warranty company, know that you’ll probably be transferred to a retention department where the staff is trained to pressure you into staying with them. Don’t feel obligated to justify your reasons for canceling — just keep saying “no.”
Get it in writing. You may need to fill out a cancellation form, so be sure to get a copy signed by a dealership representative. Keep copies of your cancellation form or letter and any other relevant documents.
Follow up. Set a reminder to confirm that your cancellation was completed. You can check your loan statement or contact your lender.
Peace of mind
This is not to say that everyone should cancel their extended warranties. Many people agree with the often-used sales pitch that a warranty provides peace of mind — something that’s difficult to put a price tag on.
Although cars have become more reliable, when something does go wrong, “it tends to be a doozy,” says Scot Hall, a former dealership finance manager and executive vice president of Swapalease, a lease-trading site. This, he says, is largely because of the increased use of electronics and the computerization of vehicles.
The article How to Cancel an Extended Car Warranty — and Why You Might Want To originally appeared on NerdWallet.
