Warranties/Credit Life & Disability Insurance

Warranties/Credit Life & Disability Insurance

After researching your best financing options, searching for the perfect car, negotiating your trade-in and purchase price, and just before you have signed on the dotted line, you will likely be encouraged by the dealership’s finance and insurance manager to purchase an extended warranty.  This is an extended service contract covering the cost of certain repairs and problems after a car’s factory warranty expires. The choice whether to purchase this warranty is up to you.  You may be covered even if you don’t pay extra, since all new car manufacturers (and some used car sellers) offer warranties on their vehicles which last for various amounts of time/mileage. Evaluate whether the cost of replacing a pricey engine part, the air conditioner, or the transmission would “bust” your monthly budget; assess how long you plan to keep the car after the original warranty expires; and ask yourself whether you would be put at ease by having certain major repairs covered under an extended service contract. Decide carefully, knowing that extended warranties are highly profitable for dealerships. Make an individual decision on whether you want to pay this extra expense. Additionally, you may be offered the opportunity to purchase credit life or disability insurance which will pay off the loan’s balance in the event of the borrower’s death, or cover loan payments during a period of disability. Your current level of life insurance and disability coverage may be important factors to you as you make this decision.

Note: Dealership finance and insurance (F&I) personnel may try to sell you other products such as rust proofing, GPS, fabric protection and vehicle anti-theft systems. Again, these products are high-profit items for dealerships and can add considerably to the final price (down payment plus total of monthly payments) if you finance these “add-ons” in your loan. Be prepared for a “sales pitch” just before you sign on the dotted line! If you desire one or more of these items, research prices with “aftermarket” retailers prior to visiting the dealership.

Each year, the Bureau’s consumer outreach specialists field calls from desperate Maine consumers who are mid-way through long-term auto loans.  They want to trade in their vehicle, but find themselves in a negative equity positions/“upside down” (often to the tune of several thousands of dollars). The best advice our staff can offer these consumers is to continue making regular or extra payments until the car is worth more than the loan’s balance. Consumers can avoid this potentially uncomfortable situation by making larger down payments when pursuing future automobile loans.