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How To Calculate The Cost Of A Used Car Warranty Sold By Dealerships
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Wouldn't it be great if you had an idea what Used Car Dealers paid for the warranties they sold....and what they plan on charging you?
Well, I believe I can show you that.
It's really just simple math. The actual dealer cost and anticipated sale price of a Used Car Warranty can generally be calculated as a percentage of the selling price.
I can't give you an exact price, but I can certainly give you a better idea of what to expect.
Here's an example of how a used car warranty is priced.
Say you're thinking about purchasing a 2002 Ford Taurus and you're considering a warranty - let's say a 4 year, 48,000 mile offer.
The average retail selling price for the 2002 Ford Taurus is just under $10,000.
The sale price on the warranty will be 8% - 12% of the selling price -
meaning for a low mileage Taurus the sale price for the warranty will be $800 (8%) and for a high mileage Taurus the warranty sale price will be $1200 (12%).
And the Dealers actual Cost? In almost all situations, the actual cost of the used car warranty will be half of the selling price.
In the case of the Taurus we're using as an example, the actual cost to the Dealer is between 4% and 6% of the selling price or, $400 to $600.
So there you have it. A simple way to calculate what a used car warranty costs, and the profit the dealer can make selling you that warranty.
Make sure you use this information when you're negotiating the price of a Manufacturers Extended Car Warranty. It should save you a considerable amount of money.
What Used Car Warranties You Should Consider.....And What Warranties You Should Avoid
I want you to be very, very careful when shopping for a used car warranty. There's a lot of fly-by-night companies out there today and many folks aren't getting their repairs paid for.
Here's a question I get asked all the time is - What makes one used car warranty better than another?
I have two answers to that question....
One, does the warranty you're looking at cover engine damage due to over-heating.
And two, does the repair bill get paid by the Warranty Company before you leave the repair shop.
Most used car warranties (even many manufacturers) don't cover over-heating and in my opinion don't qualify as a true warranty. If the warranty you're considering will pay for damage associated with overheating, it's a good one.
And if you're considering a warranty that requires you to pay for a major repair and then reimburses you at a later date....avoid that warranty like it's a plague. You're just asking to be left out-in-the-cold.
When you're shopping for a warranty, you typically have 3 options. They are:
1. A Manufacturer's backed Warranty sold by a Dealership
2. A Non-Manufacturer (Aftermarket) Warranty sold by a Dealership
3. A Used Car Warranty backed by an Insurance Company
With the Manufacturers Warranty sold by Dealers, you're pretty safe. You're vehicle gets repaired by Pros and the Warranty is solidly backed.
The only real issues I have with manufacturer-backed warranties is the way they are sold and whether or not they cover over-heating. Dealers can essentially charge whatever they want, or....whatever they can get from an unsuspecting buyer.
Here's an example of what can happen - I recently spoke with a young lady in Alabama that ended-up paying more than $2,100 for a used car warranty....and didn't even realize it.
The Dealer had hidden the amount in the contracts and she never caught the total figure they were charging her. Since Manufacturers don't police their Dealerships very well, Dealers will continue to charge whatever they believe they can get away with.
Make sure you remember to read what's covered (over-heating must be covered), know what the Dealer paid for the warranty and what a fair profit is for the Dealer.
A recent development regarding used car warranties are non-manufacturer warranty products, or aftermarket warranties, sold by Dealerships. These products are usually sold to dealers by small companies which many times have limited financial resources to honor any warranty claims.
So, why would a Dealer push a used car warranty from a small "aftermarket" company, you ask? It's simple - Money.
Dealers can make a lot more money selling these warranties because the profit levels are significantly higher than those offered by the the Manufacturers.
If the Dealer is offering a used car warranty from an outside company, make sure you pass on it. You're asking for trouble if you don't.
A third option for used car warranties offered and backed by Insurance Companies.
They can be a very good option - but you have to be very selective and very careful with any choice you make. Over the years, I've heard numerous horror stories about car owners spending tremendous amounts of money - only to have the Warranty Company deny a claim.
The first thing I recommend you do is check with your Car Insurance Company to see if they offer a warranty for a used car purchase. If it meets your mileage and time needs (4 years - 48,000 miles for example), isn't to expensive, covers over-heating and pays for any repairs before you take your car home - think about purchasing it. That warranty is usually going to be a good choice.
If your car insurance doesn't offer a warranty, there are perhaps 20 or so large companies that can help. However, more than 75% of these companies have negative ratings or complaints on file with the Better Business Bureau. Always check the BBB first to make sure you're dealing with a quality company.
One company I highly recommend is Warranty Direct & their used car warranty coverage. They typically have the lowest-cost warranty coverage's available, and they:
- Let you use the Repair Facility of your choice
- Pay the Repair Facility before you leave
- Give you Free 24x7 Roadside Assistance
- Offer an EZ Pay Financing Plan
- Have been in business for more than 24 years (long before the Internet);
- Serve almost 2 million customers;
- Offer 5 different levels of warranty coverage to meet whatever needs you have
- Give a Money Back Guarantee
- Have a stellar record with the Better Business Bureau;
- Are a Forbes Top 200 Company.
They keep their promises, answer the phone when you call and pay for your repairs - while you're still at the shop!
They offer two warranty coverage's for used cars, trucks, vans and suvs. Basic coverage is offered through MajorCare Warranty Coverage while complete coverage is offered through SecureCare+ Used Car Warranty Coverage.
Overall, Warranty Directs Used Car Warranty Coverage is a very solid choice....and a company worth taking a look at when you're looking at purchasing a used car or truck.
Should You Spend The Money On A Used Car Warranty....Or Not?
Should you purchase a Used Car Warranty? Great Question....one answer.
Absolutely....unless you're wealthy.
I want you to think of it this way. You're purchasing a machine. A used Machine. And machines break-down. It's that simple.
No matter how well the car or truck has been taken care of, the chance of major and very expensive repair stand at about 50%. I don't like those odds....and neither should you.
If a major repair, say $2000, would seriously dent your budget, get a used car warranty. It's an insurance policy worth investing in.
Words Of Wisdom
When considering a used car warranty, remember to take your time and review the Company and what is, and is not, covered by their warranty. In particular, make sure over-heating is covered and repairs are paid for....before you take your car home.
We hope you enjoy your shopping experience and save some money with these tips and advice.
And do make sure you let us know what you end up doing - e-mail us at "warranty at mynewcarpurchase.com".
I do have an obligation to point out that not all Car Makers, Dealers, Salespeople, Insurance Companies and Banks are greedy or crooked. This site is dedicated to honest Companies and their Professional Employees who've grown weary of the ignorant and classless giving the automotive related industry a black eye......a black eye that I feel is very close to being permanent.
By using these new and used car guides, I hope to be able to help you find the Best Businesses, and the Professionals that represent them, with very little effort on your part and help you....
Save More Money and More Time Than You Ever Have Before.
It is also my hope that these Companies and the Professionals that represent them will have more business than they can handle - a reward they justly deserve.
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I guarantee that you will have an exceptional experience the next time you buy a car, van, truck or SUV - again, thank you for visiting this Web Site!
Tom O'Leary - "A Concerned Dad....and Automotive Analyst"
New Car Purchase - Exceptional New Car Purchase Advice and Automobile Purchase Strategies for your next new car or used automobile purchase.
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