If you decide to lease a used car, what should you do about those Unexpected repairs? Hang a rabbit’s foot on your rear view mirror and hope you don’t have any? Or Should you buy an extended warranty to make sure any major repairs are Covered? Well, dealers are hoping that most people will buy the warranties because it gives them another chance to make enormous profits.
Extended warranties for used cars usually contain a large markup (profit) for the dealer. Low-priced ones are often sold for $1,000 to $1,500 when their cost is only $300 or $400. And some higher priced ones are sold for as much as $2,800 when the dealer’s cost is only $1,000 to $1,400. (If you decide to get one, be sure to negotiate; try to pay no more than 50% of the dealer’s asking price.)
Keep in mind that extended warranties will not cover the normal “Wear-and tear” items we just discussed (tires, brakes, tune-ups, etc.), so you’ll still have to pay for those even if you have a warranty. Adding a $1,500 warranty normal maintenance costs of $1,000 causes the total cost of driving to increase by $105 per month on a two- year lease, or $70 per month on a three-year lease, so be sure to include those expenses in your evaluation.
Another problem with buying an extended warranty a used car is that it may turn out to be worthless. The warranty Company might refuse to pay for needed repairs
claiming that the problem was caused by something else that the warranty doesn’t cover. For example, if your warranty says, “Does not cover gaskets and seals,” a seal
gasket could blow out, causing a loss of oil followed severe damage to the engine or transmission That one clause could give the company an excuse to refuse payment, leaving you with a huge repair bill.
To avoid that, look for a warranty that covers whole assemblies (engines, transmissions, etc.) instead of only specific internal parts. Policies that provide “bumper-to- bumper” coverage (excluding normal maintenance items) are your best bet.
Watch out for “50-50” policies that require you to pay half of the repair bill (usually at the dealer’s shop, or one they’ve selected). These are often worthless because they can inflate the actual charges so that the “half” you pay ends up covering the whole repair.
Worse yet, the company could go out of business before your warranty expires, leaving you with nothing but a worthless piece of paper. (That’s happened at several warranty companies already.) Make sure that a warranty is backed by a reputable company that’s been in business for at least ten years.
To protect yourself on a used-car lease, tell the dealer that you expect him to provide an extended warranty for free, or you don’t want the car. (If that doesn’t work, you might offer to pay $200 to $300 for it, but make sure it’s a legitimate warranty.) The warranty should have a low deductible and it should provide coverage for the term of the lease.
