What exactly is extended car warranty insurance and is it a smart option for you?
"The dealer guarantee requires motor dealers to repair or make good, at their own expense, any defective vehicles they sell."
As a car buyer in Australia, whenever you buy a new car, it comes with a guarantee from the dealer that it’s in good working condition and will perform as it should. If it’s not, you can take the car back to the dealer and they are legally required to make it right at their own expense. This might involve adjustments, repairs or an entirely new car.
The catch is that this guarantee only lasts for a limited period of time, or for a certain distance driven. The exact protections available vary between states. In NSW, for example, newer cars (those with under 15,000km driven) have limits based on which of the following conditions comes first:
- A total of 20,000km driven since manufacture
- 12 months since purchase, minus 1 month for every 2,000km the car has already been driven
Used car buyers, as well as used or new motorcycle buyers, are entitled to similar protections, except with lower limits. Once you have reached the limits set by your state, your warranty runs out and the dealer is no longer required to cover the cost of fixing or replacing your car.
An extended warranty raises these limits and acts as a type of insurance policy to protect you against any inherent defects that may be present.
Is an extended warranty worth it?
You should consider the benefits the warranty offers, and weigh it against the cost. Some finer points of warranties to consider include the following:
- The dealer warranty is for inherent defects only. These are faults that occur through no fault of your own when using the car as intended. It does not refer to accident damage, scratched paint or anything else that was the result of something you did while driving the car.
- It does not replace car insurance. You will still need to get the appropriate car insurance policy to protect you on the road.
Inherent defects are probably more likely than you think. In fact, more than half of all Australians have car problems within a few years of buying, and most of them go right back to their dealer first.
Those with extended warranties may have been pleasantly surprised, while those without might have been more likely to end up paying for it out of pocket. Even comprehensive car insurance policies will typically not address these mechanical or electronics failures, so relying on a warranty may be the only way to get free repairs for these types of issues.
Between an extended warranty and your car insurance, you will be well protected. However, you should be aware of some of the potential traps associated with extended warranties before buying.
Extended warranty traps to avoid
First, check that the dealer warranty actually applies to your purchase. Under Australian law, the dealer warranty does not apply in the following situations:
- Cars sold at auction with a notice that they are not covered by a dealer guarantee
- Cars with visible damage that would have been obvious when you inspected it
- Incidental or accidental damage done to a car after it enters your possession
- Cars sold as a one-off, such as at a garage sale instead of through a dealer
You should also consider the actual terms of the extended warranty. Remember, it is a contract and you are only buying the terms promised by the document.
- What’s the limit? How many more kilometres or more time does it give you?
- What does it promise? What exactly is the dealer required to do when you take the car in? Does the contract say the dealer will pay the cost of repairs at a mechanic of your choice, or will they just take it to the cheapest one they know? Look for the precise terms of the warranty and make sure you know what you’re signing.
- How much does it cost? Looking at the limits and the benefits, is it worth the money?
- Is it a “free” warranty? The dealer might just be taking credit for offering the benefits they are legally required to offer.
You should also consider the reputation of the dealer you are buying from. Dealer guarantees, run out after a certain time limit or distance driven, so it’s not uncommon to encounter delaying tactics when you try to use your warranty. Similarly, a dealer might argue that you caused the damage or that you were aware of the damage when you bought the car.
If you don’t think you can trust your car dealer, you probably can’t trust their extended warranty either.
Should I buy a used car without a warranty?
A warranty can deliver some valuable peace of mind if you think the car you’re buying might have some hidden problems, but it might also be a waste of money.
You need to consider whether the car is still covered under a manufacturer or dealer warranty as well as the benefits you may be entitled to under Australian Consumer Law. Between the three of these, newer or little-driven used cars may still be covered by a warranty.
No two extended warranties are alike, and the only way to decide whether this car dealer extra is good value for the money is to know exactly what it promises and exactly how much it costs.