Advertisement

Why ads?
Popular at KBB.com
  • 10 Best SUVs Under $25,000
  • The 40 MPG Cars of 2014
  • 10 Best Sedans Under $25,000
  • 10 Most Affordable Cars of 2014

CPO vs. Extended Warranties/Service Contracts

Long before the first manufacturer-backed certified pre-owned program, used-car buyers could buy repair protection from dealers and third parties in the form of service contracts. Such coverage is still available - and a smart buy in some situations -- but it's important to know the distinctions between the two.

Whereas manufacturer-backed certified pre-owned programs typically include manufacturer-backed extended warranty coverage, a thorough vehicle inspection and other benefits such as roadside assistance, service contracts are usually lighter on features, heavier on restrictions and backed by less-established institutions.

Who backs up that extended warranty/service contract?

A used car plus a service contract will typically cost less than a certified pre-owned car, but the benefits also are lower and some "catches" may apply. For factory-backed certification, the manufacturer is likely to be around a lot longer - though the fact that several major car brands have disappeared recently has to be considered.

If repair coverage is backed only by the dealer, or a third-party organization, can you be sure they won't go out of business? Plenty of service-contract providers have done exactly that, leaving their customers with no protection at all. Look for a provider with a good reputation, checking with the Better Business Bureau.

Two terms with the same meaning

Some call it a service contract, others an extended warranty. The two terms are used interchangeably, but extended warranty is something of a misnomer because warranties are normally tucked into the total price of a product and unavailable for purchase separately.

Basically, you're buying insurance

Whatever the term, it's essentially an insurance policy. That means it has limitations, exclusions and restrictions. Service contracts for used cars may provide full bumper-to-bumper coverage, apply only to the powertrain, or something in between. Also, a deductible amount might have to be paid "out of pocket" for each repair, or for each visit. If a repair takes two or more sessions, ask if the deductible must be paid again.

Reaching beyond the original factory warranty

For a late-model used car with low to moderate mileage, the original factory warranty probably remains in effect. Normally, it's transferrable to the next owner.

Factory certification typically adds warranty coverage that goes past the expiration date of the original new-car warranty. It takes effect after the original expires, covering a specific, stated period of time. That period could be a year or more, or only a few months.

Third-party warranties have similar limits, but details vary considerably. If an extended warranty/service contract is transferrable, it adds value to the car for possible future sale.

Study that contract carefully

Whichever type of certification the car is receiving, check the contract terms carefully. Make sure you know how long the coverage will last. Is there a mileage limit (some are for unlimited mileage)? What types of repairs are excluded? Overheating, for example, is one problem that may or may not be covered by a warranty. Inquire about ordinary wear-and-tear items.

Must repairs be approved in advance? Can repairs be made anywhere, only at specified shops, or only at the dealership where the car was purchased? Obviously, warranty coverage that applies anywhere in the country, at any dealership for that car make, is the most practical.

CPO Program Details

Not all CPO programs are created equal. How does the one you're considering stack up?