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Comments
An extended service contract is very expensive insurance. Extended service contracts are written to protect the provider and the small print is, as intended, difficult for most to understand.
What really bothers me about such contracts is the amount of profit a dealer makes. For example an extended service contract for which a buyer pays $2k might actually cost the dealer $800 or so. People should ask themselves if they really think paying a dealer over a thousand dollars is a good deal?
Lending institutions will provide the dealer with the interest rate for which a buyer qualifies and will also provide the maximum amount of the loan they will finance. Often times this amount is more than the price of the vehicle.
The less honest dealers will often inflate the interest rate or pad the loan by including costly add-ons to get as close as possible to the maximum amount the lending institution will finance.
Those less than honest dealers will receive a portion of any additional payment resulting from such a padded interest rate as additional profit. This appears to be what they did to you.
Clearly, in the worse case you qualified for a five percent interest rate. Since that is high in today's market my bet is this five percent was inflated by the dealer and you actually qualify for a lower rate.
At a minumum you might want to go to Capital One Auto Finance on line and apply for a loan to see what they will offer you. Since you have already bought, Capital One has refinancing options. As a benefit, if you refinance the dealer will lose the profit it thinks it made on your financing.
Personally I would have run from this dealer as fast as possible. There are far too many red flags.
Can an 84-mo loan work? Sure, but the folks with the financial discipline to do it know they'd be better off with a shorter loan. Most 84 month loans are to let folks buy more car than they should. Any financial bump in the road and they're in the ditch.
Here's a good article in Car and Driver describing the problems:
Problems with warranties
A third party extended service contract is like a bad gamble, even worse. People should consider those old US Fidelis commercials pitched by Rusty Wallace and research how people found the actual experience of dealing with Rusty and US Fidelis.
The reality is an extended service contract is rarely a good decision. For a limited number of people there may be a benefit. However, for the majority money spent on such a warranty is money wasted. There is a reason most independent experts, not those with ties to dealers, advise against such contracts.
If a person really wants an extended service contract, they should only buy it from the manufacturer. Any other source represents an unacceptable risk and most likely a waste of money.
Than being said, I would never take a 84 month auto loan unless it was at zero percent. In that case an 84 month loan would be free money.
Owing more than a car is worth is not inherently bad. People only get equity in a vehicle if they have paid for that equity. Equity is not free. With a zero percent loan, for example, why pay upfront for equity when that money can be put into an interest bearing account resulting is a small profit?
The reality is each buyer is different and each has a different set of needs and desires. There is no single set of rules applicable to every person.
I know there are cheaper warranties through ChryslerWarrantys.com and another site that I found on here. Given the mileage on the car already I was thinking it would probably be smart to do the Max Care for 5 years which would cover me until just 140,0000. Based on the mileage the price would be 3,800 and would let me put 10% down and then pay monthly interest free. Which level would you recommend? I am leaning more toward the Max Care based on peace of mind and $100 deductible each time. Either that or the Added Care Plus. I am ok with paying a bit more for peace of mind but don't want to waste money. I know it's hard to say what will happen in the future but would this be worth it? The Maximum Care plan covers everything except things that are affected by normal wear (brake pads, shoes, rotors, drums, belts, glass, paint).
Any advice would be greatly appreciated.
But I won't, they're not worth the cost on average.
Probably be better to skip the extended service contract and use the money to buy a vehicle with less mileage. Can not think of a valid excuse to justify spending $3,800 for a contract which is most likely useless. Not sure about you, but I can think of a lot better ways to spend $3,800.
First is obviously the price dealers attempt to charge. The contact probably costs the dealer $900 or so for a five year contract. The dealer will attempt to sell this to a buyer for $2,000 or more. I doubt many people would be happy with a dealer making more than 100% profit. After all those same buyers probably spent hours dickering over 5% profit on the vehicle itself.
Second is the limited length of the contract. A five year contract is really only for two years, one in some cases. Is it really smart to spend $2,000 for twenty-four months of coverage? Most likely a person would be better served to assume there will be no covered repairs during that period which would cost more than the cost of the contract. After all the contract is priced that way. If the service contract provider sells the contract to the dealer for $900, that provider is certain the amount it pays out on average will be far less than $900.
Third is the small print, which is always available for the contract provider to use not to pay. Example, the covered component failed because he noncovered component failed so, sorry, not covered.
If a service contract is desired, it should only be bought from the OEM. All third party contracts are inherently risky. Also, the contract should be bought after the purchase from a different dealer. The dealer selling the vehicle is counting on the convenience of adding the contract to the financing. This will almost always result in a person paying far too much for the contract.
Finally, as with the service contract, any F&I product kindly offered by the F&I manager is overpriced, can be purchased elsewhere for a fraction of the price, and is usually useless. And really, what does an F&I manager actually manage? It is the dealer's profit.
Any interested in the F&I goals of a dealership should research on the web. The man behind the curtain will be revealed.
Add-on products, such as extra insurance, are a popular mechanism used by car dealers to boost profits.
Though such products are legal, regulators are probing whether terms and prices are adequately disclosed.
The Justice Department, meanwhile, is probing auto dealerships that make their own loans to customers with poor credit and charge higher rates."
Regulators Scrutinize Auto Lenders Over Add-Ons (Wall St. Journal - you may have to do a net search for the story if the WSJ link won't open for you)
Pretty much every company will offer a variety of contracts depending on the age and mileage on the vehicle. This allows you, the consumer, to decide if you want to spend MORE money and have MORE coverage or spend LESS money but get LESS coverage.
The problem is that people select the low end contracts and the get angry because they don't cover an item that fails on their vehicle. They refuse to spend the time necessary understanding what is and isn't covered before they make the purchase decision. If a company offers 5 different contracts and you choose the lowest level of coverage then it's YOUR fault if it doesn't cover what you wanted it to. READ the coverage and stop letting a finance person tell you it's "bumper to bumper". Outside the manufacturer's base warranty, and there are exclusions in that as well, there is no "bumper to bumper" coverage.
Companies fail everyday, that's a fact of life. But to try to claim every 3rd party, or aftermarket, warranty company is a ripoff is just stupid. If you purchase a plan on your vehicle based on a phone call, email or card in the mail and that company has done nothing to verify that your used/high mileage vehicle is in good shape you're just asking to be ripped off! Quit trying to blame the company for your lack of understanding your contract and your failure to know what you are buying. If you want a lot of coverage then buy their best available warranty.
Most have 2 different types of coverage. One is what is known as "stated component" coverage or contracts. This means to be covered the failed component MUST BE SPECIFICALLY NAMED IN THE CONTRACT to be covered. The other is an "exclusionary contract" which means if a failed component is not EXCLUDED in the contract then, barring a condition or cause of failure that is excluded (lack of maintenance, damage or modification), then it is covered.
KNOW WHAT YOU ARE BUYING!!!!
Here's what Consumer Reports had to say:
"Don’t purchase an extended warranty on a car with a good reliability record. In a 2008 CR survey, 65 percent of respondents said they spent much more for the contract than they got back in savings on repairs."
And here's what Car and Driver said:
"The TV commercials are slick and convincing: Buy a “service contract” for your out-of-factory-warranty vehicle—even if it has more than 200,000 miles on it—and never face repair bills again.
Too good to be true? Probably. Three principal companies that sell these extended warranties—US Fidelis (the largest), Mogi, and StopRepairBills.com—as well as about 35 others, operate in the St. Louis area. All have websites, but business is conducted only by phone, with salespeople paid by commission, working from a script.
Illegal? Probably not, but Michelle Corey, head of the St. Louis Better Business Bureau, says the sheer volume and ongoing complaint patterns involving industry giant US Fidelis, as well as complaints against numerous other St. Louis–area extended-vehicle-service-contract companies, are “nothing short of astonishing.”
“We continuously are receiving reports from consumers saying they have been pressured or misled into buying warranty contracts they either don’t want or don’t need, or have been left holding the bag when the claim-processing company refuses to pay for costly repairs,” she says. US Fidelis, as well as Mogi and StopRepairBills.com, has an “F” grade with the St. Louis BBB, the lowest possible."
Like I said, too many bad apples in that barrel.
And truly, people are justified in blaming both the service contract company and the dealer for a bad service contract. Both engage in highly deceptive practices which often staddle the legal limits to entice customers to spend thousands for a product which is designed to be of limited value.
Those third party companies design their plan descritions to confuse unsuspecting customers. They provide pretty summaries in large print which give the appearance the plan covers more than it actually covers. They hide the specifics within the small print and technical wording which they know will not be read or understood by most people.
Automobile finance managers who lurk in the F&I office are complicit as well. They present themselves as the customers advocate in the dealership and design presentations, often with props and records, to entice customers to buy various products at exaggerated prices. The work hard to limit the amount of time the customer has to review the service contract verbiage. They focus the customer to the large print while ignoring the details, where the gremlins lurk. Their focus is mostly on the huge commission they receive from each service contract sold. Such focus rarely results in a postive outcome for the customer.
Certainly it is true many companies fail. However, most of those companies have not sold future service contracts to customers for thousands. Clearly a consumer must be far more vigilant as to the long term prospects of a service provider than with their local hardware store. Ask anyone who bought a service contract base on Rusty Wallace's recommendation.
The best advice anyone can give regarding an automobile extended service contract is do not buy one. Today's vehicles are generally well designed with few problems which would be covered by any extended service contract. Instead buy a vehicle with a solid reliability record. Put the money that would be spent for an overpriced extended service contract in an interest bearing account. That way it is there if you need it. Better yet, it is there and not in the pocket of the service contract company or F&I manager if you never have a repair.
And remember, any time you buy a product in the F&I office a large amount of the money you pay is simply going into the pocket of that smiling F&I manager sitting across the desk. The money the F&I manager made during your half hour visit is the reason for that smile.
Ask someone who has had a catastrophic engine or transmission failure or an a/c system that's wiped out if their contract was worth it. But it's not just those problems. There are plenty of vehicles that have never had transmission or engine problems but have electrical, suspension and numerous other issues that MORE than pay for their plan. Obviously the idea is for the contract to pay out less than the money they take in, it's a BUSINESS! If you have enough money to cover repairs if needed without breaking the bank then don't buy one. Unfortunately, most people buy more car than they can afford and can't properly maintain their vehicle let alone pay for repairs.
The bottom line is KNOW what you are buying. Don't let someone tell you "it covers everything" without having them show you where it says that in the contract. And try paying attention when they are going over the coverage and ASK QUESTIONS and make them show you where your question is answered in the contract.
Even cars with good reliability track records can have failures. They may or may not be the high dollar transmission or engine failures, but having window motors go out at Christmas time, or an a/c that quits working just as you're planning your drive to Florida for vacation can put a major kink in your plans. But, if you have the money to fix repairs IF they occur without breaking the bank then don't buy a contract.
Honda has long been considered a very reliable vehicle. Ask some service people who have worked for Honda about the "black death" on a/c systems a few years ago. Extremely expensive and NOT covered by Honda after the warranty period and it rarely occurred DURING the base warranty period.
I would definitely recommend buying only through a dealership. The companies who are shady operators won't last long because its too damaging to the dealerships reputation. And research the company before you buy. If you are ONLY going to have your vehicle repaired at a factory dealership then maybe you should by the OEM contract, though this isn't possible if you purchase a pre-owned Honda from a Chevy dealer. Also, if you're traveling and aren't near a dealership or they can't get to your vehicle for a few days with the OEM contract you cannot take it to an independent shop, with aftermarket you can.
Again, it's a BAD IDEA to make blanket statements about most anything.
Another thing to consider...those who can afford to self insure generally follow the routine maint. schedule like clockwork. Folks with limited funds rarely do "everything" that should be done on the MFG schedule. Thus compromising the reliability of the vehicle in the long run. Now that so many car companies are using turbo's I can't wait to see the related problems by poor maintenance. I also make sure the electronics are covered, because they are really expensive to replace!!
Of course, Ive never had anyone who had a big service bill paid by warranty every tell me they were sorry they purchased the extended warranty. LOL
In January of 2010 I purchased a 2008 Buick Enclave with 58,000 miles. The original warranty on the car was 36,000/3 years. So, it was already out of warranty. Since this was the most expensive vehicle I have ever purchased, I was looking for some peace-of-mind. I purchased an extended warranty from the dealer at a cost of around $1500. In my case, I am glad I did.
I purchased the 2008 Buick Enclave due to my large family and the need to have an eight passenger car that would actually fit in my garage. About six months after my purchase, things went south on this vehicle. I found out that this model year of the Enclave was plagued with issues and I was experiencing many of the same issues other 2008 Enclave owners had experienced. Everything from issues with the power steering, leaking timing chain housing, bad idler arms, leaking sunroofs, leaking rear transfer case (all-wheel-drive), leaking water pump. The prize winner was when the transmission went out just before 80,000 miles (again this was a common issue due to a failed part called the 3-5-R wave plate).
The extended warranty I purchased was a "Bumper-to-Bumper" warranty from Zurich. I read the warranty from beginning to end before I agreed to purchase the car and the warranty. The warranty was very specific about what was covered and what items were not. Long-story-short, the Zurich warranty covered every failed item listed in my previous paragraph, including the transmission. I took my vehicle back to the dealer I bought it from for all repairs. To this date, I have paid approximately $500 in out of pocket costs for these repairs. Each incident is a $100 out of pocket deductible. The bills for these repairs has exceeded $9000...the transmission was $5500 alone. Zurich has covered all the repairs without hesitation.
I guess I must be one of the "lucky" ones that actually had the investment in a warranty pay off.
Last week as I was going through a drive thru there was a loud bang from the front end of the van. I was not able to go forward or backward. Had the van towed to the local dealer and he said that the axle snapped. He said it would be covered under our extended warranty however they never dealt with Costguard. They called me later and said that Costguard denied the claim because the reason the axle snapped was because somehow the boot got a tear in it and the grease leaked out. We have never seen any sign of leaking on the garage floor or the driveway. They said we probably wouldn't as they put shields so it doesn't leak onto the ground. So according to them even though there was no way we could have know this had happened or was happening and we were not negligent in our use of the vehicle but they do not cover parts when there is a lack of lubricant.
I told them I could understand if the oil light went on and we continued driving the van or if the temp. light came on and we continued to drive the van. But there was no way we could have know this was happening. The van drove fine up to that point of when the axle snapped.
We now have a $600 bill with a extended warranty that is pretty much useless.
But I would just put that money in a savings account, with the knowledge that I'd probably have most/all of it left by the time I sold the Expedition.