A dealer will often offer you various products that you can purchase when you buy or lease your car. Understanding what these products are and their value can help you determine if they will benefit you.
Warranties – A warranty is a promise by the person giving the warranty to make certain repairs to the car if necessary. Warranties may be included in the price of the car. When you buy a new car, the car will have a warranty from the manufacturer of the car that covers specific repairs. If you buy a used car, the car may still be under the manufacturer's warranty if the car is relatively new. Most manufacturer warranties last for a certain number of miles or a certain period of time. Sometimes a used car dealer will offer its own warranty for the car. This type of warranty often costs extra and can be added to your loan or retail installment sale contract. Warranties often only cover certain portions of the car. For example, the warranty may only cover repairs to the drivetrain. Under this type of warranty, you would pay for repairs for everything other than those repairs to the drivetrain. You should understand what is covered under a warranty and for how long, and compare warranties when you shop for your car. car.
Extended Service Contracts – These are often called "extended warranties," although they are not true warranties. They are agreements between you and an entity that will perform (or pay a dealer to perform) certain repairs and service on the car. The cost for an extended service contract is paid for at the time you buy the car and may be added to your loan or financing amount. You can also purchase an extended service contract at a later time rather than buying it when you buy the car. You should understand the warranty that comes with the car and decide if buying an additional extended service contract would be necessary or cost effective for you. If the manufacturer's warranty is about to expire or if there is no warranty or only a limited warranty, then an extended service contract may be a way to save money on future repairs.
Guaranteed Auto Protection or GAP Protection – When you insure a car, the insurance company will only insure the "actual cash value" of the car. In other words, if you are in an accident and the car is totaled, the insurance company will only pay for the value of the car at that time. This may be different from the balance that you owe for your purchase or lease of the car. The value of your car may be $10,000 but you may owe $15,000. If the car is totaled, the insurance company would pay $10,000. You would still owe the lender or leasing company $5,000, but have no car to drive. To avoid this situation, GAP coverage covers the "gap" between the value of the car and the amount you owe to a lender or leasing company. The coverage may be in the form of a "waiver" of the amount you owe. GAP coverage may be a smart purchase when your initial loan or lease balance is based on more than the cash price or capitalized cost of the car because you still owed money on a car you traded in when you bought or leased your new car. Some lease contracts have built in GAP coverage. Read the GAP coverage before you purchase it, as some coverages are limited in amount they will pay, or for certain "total loss" events.
Credit Insurance –This type of insurance usually comes in two forms: credit life and credit disability.
Make sure you understand that you are not required to purchase credit insurance to obtain your loan or retail installment sale contract. It is entirely optional and a lender or dealer should not require you to purchase it to obtain your loan or retail installment sale contract.
Credit life insurance pays the lender or leasing company for the outstanding loan amount if you die while still owing money to the lender or leasing company. Credit disability insurance pays the lender or leasing company for the payments due on the loan or lease if you become disabled and are unable to work and pay your obligation. The premiums for these types of insurance may be paid when you buy or lease the car, or may be charged when you buy the car but financed over the term of the loan or contract and paid with your regular payment. Credit life and credit disability insurance may be more expensive than other life or disability insurance you may purchase through your insurance agent.
Other Add–ons – Dealers can also sell you other products at the time you buy or lease your car. These products can include seat fabric protection, paint sealant or rustproofing of the underside of the car, and security products such as a tracking number etched into a window or imprinted on a side panel. These products may be helpful, but you should carefully consider whether the added cost will be a benefit to you.