Whether you are buying a new or used car you can bet that some time before your hand is shaken and you pull out of the car dealership, someone will attempt to sell you an extended warranty. It’s as inevitable as the sun rising. And surprisingly, whenever I write about extended warranties I always get strong responses from people in the car business. I guess you can question ethics, conduct and business principles, but don’t mess with the extended warranties! But, I am going to risk the ire of the auto industry and do just that, write about auto extended warranties.
To begin with, I want to stress that I am not anti-extended warranties. I think they can be very beneficial for the right customer; my problem is that extended warranties sold by car dealers usually cost hundreds if not thousands of dollars more than similar warranties sold by internet companies. That’s why I recommend using an outside source if someone needs an extended warranty.
The subject of this article is the scam many dealers commit with extended warranties. As the Auto Insider I want to arm you with the tools you need to ensure a car dealer can not pull the ‘forced extended warranty’ scam on you. The reason unscrupulous dealers love this scam is because its easy to do, its surprisingly easy to get people to fall for the scam and it’s highly lucrative (each time this scam gets pulled off successfully the dealer makes at least $500 and often thousands of dollars). So, if a dealer is ‘ethically challenged’ the extended warranty scam is probably one of his favorite scams!
To pull the extended warranty scam off it is usually conducted by the dealership’s F&I manager (F&I stands for financing and insurance – after you have agreed on a car and it’s price you move into the F&I phase of the sale). Once the unsuspecting customer is in the F&I office he or she is informed that the only way they will get financed, or the only way they will get financed at an attractive rate is if they take an extended warranty. What the customer is told is, “the bank is requiring you to take the extended warranty to complete the deal.” If the F&I manager is asked why he or she will respond with a lie like, “The bank is concerned about you maintaining the vehicle during the period of the loan.” Don’t be fooled, this is a lie! If you have bad credit or sub-prime credit the odds of this type of scam being attempted on you increases greatly, so be extra vigilant!
The forced extended warranty scam has been around for as long as they have been putting tires on cars and there’s one other constant: it was a lie then, it’s a lie today and it will be a lie long after we’re all gone! If anyone attempts to pull this type of forced sale on you during your car-buying experience feel free to tell them, “that’s funny, I have a friend in the auto business, he’s an Auto Insider and he told me that a bank would never try and force me to buy an extended warranty. He said it’s a scam and in many states this is an illegal sales tactic. So, lets put this little bit of unpleasantness aside and proceed like it never happened, OK.”
That should stop 85% of the scam-pullers in their tracks, but for the real persistent your follow-up response should be, “OK, now I know you benefit financially if I purchase an extended warranty and I know the bank does not. (Take out your cell phone and extend your hand now) So, if you are telling me the truth please give me the phone number of the lending agent. I want to call them on my cell phone, confirm their decision to commit this scam and capture their phone number on my cell phone so when I contact the state’s Attorney General about this matter they can quickly stop this type of auto scam from happening again! At this point you should have no problem continuing the car buying process, or if the sleaze is too nauseating you can bring your business to another dealer.
Be warned, like any long-running con, the forced extended warranty scam is conducted under many names with slight differences. Don’t be surprised if instead of the word ‘Extended’ the F&I manager might use terms used like, wrap-around, additional, bonus, extra, supplemental, mandatory to name a few. Also, they might attempt to fool you by using words like, protection, coverage, certificate, contract, guaranty, surety in place of the word ‘warranty. So you can see there’s a long list of pseudonyms for the term ‘extended warranty’ so you can not rely only on the name the F&I manager uses. What I recommend you do is keep in mind that the only requirement a bank makes when they agree to extend a loan to you is the completion of their paperwork. When they agree to lend you the money for a car the only other expenditures you are required are items like: licensing (plates and registration as needed by state) and insurance. The bank is not concerned about the car’s long-term condition, just your ability to repay them! So don’t be fooled, if you are on your toes the forced extended warranty scam is an easy one to avoid!