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Understanding Extended Car Warranties

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you buy a car, having a manufacturer’s warranty that covers certain repairs and services can give you extra peace of mind. If that manufacturer’s warranty is a good idea, wouldn’t a longer warranty, or “extended warranty,” be even better?

Possibly. Whether buying an extended warranty is right for you depends on a number of things. Before you decide to buy one, make sure you understand what extended warranties really are, and how they work.

What is an extended warranty?

An extended warranty is not a warranty as defined by federal law, according to the Federal Trade Commission. Manufacturer warranties come with the car and they don’t carry an extra fee.

“Extended warranties,” on the other hand, always cost extra. They are actually service contracts, under which the provider promises to perform, or pay for, certain repairs or services.

What does an extended car warranty typically cover?

An extended car warranty, or vehicle service contract, covers certain types of repairs in addition to or after the manufacturer’s warranty ends. They generally cover:

  • Mechanical breakdowns. Different types of breakdowns may be covered for different periods of time or numbers of miles.
  • Other specifically covered services and problems. For example, some contracts offer services such as free oil changes, if specified. (Some dealer incentives that include oil changes are not part of the extended warranty.)
  • Extra coverage with more comprehensive plans. With certain plans, you may be entitled to towing services, a rental while your car is in the shop, or travel insurance.

What does an extended warranty not cover?

Extended warranties generally don’t cover predictable care and servicing of a vehicle. For example, warranties may not cover:

  • Running costs such as windshield wipers, brake pads and other regular maintenance, unless specified by your contract. Tires are generally not covered by extended warranties; however, most tires are protected by some kind of tire manufacturer warranty if they wear out prematurely, according to Edmunds.
  • Your warranty deductible. You may have to pay $100 per visit or per part, for example.
  • Problems due to lack of maintenance. Neglecting to check or change the oil, for example, may void your warranty.
  • Diagnosis costs. If a mechanic must tear your engine apart, only to find out the problem is caused by non-covered parts, you may have to pay for the parts and labor.
  • Problems caused by “normal wear and tear.”
  • Anything not listed as covered. The Federal Trade Commission (FTC) advises that if an item isn’t listed, you should assume it’s not covered.

When should you consider an extended car warranty?

An extended car warranty can be a good idea in certain circumstances; for example if:

  • You need a predictable budget. An extended warranty can protect you from covered major repair expenses. Be aware that the warranty won’t cover everything, however.
  • You understand what is and isn’t covered by the contract. Take time to read the fine print, before you sign.
  • You can meet all the contract requirements. Extended car warranties come with rules about regular maintenance. You may be required to have free services done at the dealership, or by approved companies.

Under the Magnuson-Moss Warranty Act, enforced by the FTC, your contract cannot be voided because you or another mechanic performed routine maintenance and repairs on your car that would not be free under your contract.

When should you skip an extended car warranty?

  • When the service contract overlaps with your manufacturer’s warranty. Manufacturers’ warranties on new cars generally offer coverage for at least three years or 36,000 miles, whichever comes first. Your extended warranty probably does not offer you benefits until the manufacturer’s warranty ends, according to the FTC.
  • When a nontransferable contract may last longer than you own the car. Some contracts cannot be transferred, or they require a fee in order to transfer the contract when you sell the car.
  • You live far from the service location. Some contracts only offer service that is included in the contract in a certain location. If you bought your car out of town, or if you later move, that might be inconvenient or impossible.
  • If you are pressured to buy the extended warranty. Some dealers may give you the impression that you are required to buy the contract or that you can’t get financing without it. According to the FTC, you are generally not required to buy an extended warranty either to purchase a car or to get financing for it.

Shopping around for extended car warranties

Make sure you know these things before you sign:

  • Who provides and administers the service contract? Dealers sometimes make it seem you can only buy extended warranties from them, and that they are providing the service contracts. Service contracts can actually be provided by the dealer, the manufacturer, or a third party. They may be handled by an administrator.
  • Who is obligated to fulfill the contract? Find out who backs your contract if the provider or administrator goes out of business, and if the contract is backed by an insurance company.
  • Who is selling you the warranty? If you got a robocall about the warranty on your car, be careful. The FTC describes phone pitches for extended warranties as often “high pressure,” and says they may demand personal information. Some calls are actually scam artists trying to get your Social Security number, bank account number, and other information.

Factory warranties vs. third-party warranties. While an extended manufacturer warranty is only available from the manufacturer, you can shop around for your own extended warranty. You could also call dealerships in your area to compare going rates. At the very least, you’d be armed with a few quotes before buying your new car though you could add an extended warranty at any time, as long as the car is within limits of age and miles. AAA offers extended warranties as may other motor clubs in addition to private companies.

Negotiating an extended car warranty

Negotiating to purchase a car doesn’t stop with determining the cost of the car you’re purchasing and how much you pay for an auto loan. You may also have room to negotiate the cost and benefits of your extended car warranty.

Get your best deal on a warranty the same way you got a deal on your car. Know as much as possible before you get there, including whether you are even interested in a service contract. Don’t necessarily take the first price you hear. And be willing to say “no” if the deal doesn’t sound like it’s in your best interest.

Alternatives to buying extended car warranties

An extended warranty isn’t the only way to handle car expenses or unexpected repairs. Consider these alternatives for managing your risk:

  • Budget for car service and repair expenses yourself. Car maintenance is expensive. Buying a service contract doesn’t make the expenses go away — you just pay for them another way. Work toward maintaining enough in your savings to pay for both predictable expenses (such as tires) and less predictable expenses (like transmission trouble). You might start your savings fund with the money you don’t spend up front for an extended contract.
  • Buy a more dependable, easy-to-fix car. Some cars are in the shop more often — and cost more every time they go there. Ask your mechanic which cars he recommends. You could also check out recommendations from organizations such as Consumer Reports or research ratings from government agencies such as the National Highway Traffic Safety Administration or Insurance Institute for Highway Safety.

After you pay for a warranty

Keep an eye out for written confirmation of your service contract. It shouldn’t happen, but the FTC says some dealers take the money from extended warranty sales and neglect to forward the payment to the administrator or third party, leaving the buyer without coverage.

Be sure to maintain your car as required under your contract, and keep your receipts. For one thing, your contract may be void if you don’t. More importantly, a well-maintained car is less likely to need major repairs. The only thing better than having a big repair bill covered by a contract is to not have your car break down at all.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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How to Pay Off Your Car Loan Faster: Here’s What to Consider in 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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There are several ways to pay off your car loan faster, several of them without shelling out an extra dime. Auto debt not only accounts for about 9% of all consumer debt in the U.S., it’s growing: monthly payments are larger, terms are longer and APRs are higher for new and used cars than they were five years ago. Paying off your car as fast as possible frees up that money for other things.

How to pay off your car loan faster without paying more

The faster you pay off your car loan, the less you’ll pay in interest. But it may not always be possible to throw more money at your monthly payment. Here are some ways you may be able to pay off your car faster without paying additional money on the loan.

Refinance

This is the process of applying for a new auto loan to pay off your existing loan, hopefully with a better interest rate or term.

Pros. A refinance loan could help you pay your car off sooner and with a lower interest rate. Maybe your credit score has improved since your original auto loan — the best rates tend to go to those with the best credit. Average rates dropped at the end of 2019 with an average APR of 5.5% for a new car loan versus 6.0% at the same time in 2018.

Cons. Downsides should be few except for the time spent shopping for the best rate and any fees you might have to pay such as those to your state’s department of motor vehicles to transfer your car’s title to the new lender. These costs should be low, under $100.

Who it may be good for. An auto refinance loan may be a good option for you if:

  • You have a high interest rate and either your credit has improved since you signed for the auto loan or you’re not underwater on the auto loan, meaning you do not owe more on your car than it is worth.
  • If you do not face high penalties for paying off your current loan early.
  • You got the auto loan through a dealership, especially a “buy here, pay here” establishment. The average hidden interest rate added by dealers is 2.47% and “buy here, pay here” businesses are known for predatory lending practices.

How to do it. Call your lender to find out how much you owe and your APR. Refinance lenders usually ask for this information, so it’s good to have it on hand. Then you can look for the best auto refinance companies and find potential auto refinance offers.

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LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Cancel any add-ons

Common auto loan add-ons include GAP waivers, service contracts or extended warranties, tire and wheel warranties and more — you may have agreed to these when you bought your car without understanding the full cost. Canceling them will decrease how much you owe on your auto loan, allowing you to pay off your car loan faster.

Who it may be good for. Anyone who has add-ons may be able to cancel them. The less you owe, the less you pay.

How to do it. Check your car contract, call your lender or call the dealership to see if any add-ons are listed on your paperwork. If there are any, find out what they are and consider canceling them to get a prorated return. You may need to fill out some paperwork to officially cancel the add-ons, but a few hundred dollars may be worth it.

Special note. If your car has a history of needing repairs, take that into consideration before deciding to cancel an extended warranty. If you are underwater on your car loan, think carefully before you cancel GAP, which is made to protect upside-down borrowers.

Make payments every two weeks

Instead of paying once a month, take your existing car payment and split it in half. Paying every two weeks means your loan balance is continually decreasing, which has the effect of paying less interest over the course of the loan.

Why it can be good. This is a way to essentially make an extra payment without forking over extra money.

Who it can be good for. By doing this, you’re not paying any more than you normally would, but it has the effect of making an extra payment a year, so it may be especially good for someone on a tight budget.

How to do it. Check with the lender to be sure you won’t run into any prepayment penalties. If not, make a half payment every two weeks instead of one full payment each month. You could automate your checking account to send the payment, or give permission to the lender to automatically pull the payment.

How to pay off your car faster with the most bang for your buck

Have extra cash to put toward your auto loan? While the methods above are good, the fastest way to pay off your car is to increase the amount you’re spending. Almost all of these tips involve making extra payments to the principal, the amount you owe on the car not including interest. But first check with your lender that you will not be penalized or charged a fee for prepaying your loan.

Make extra payments to the principal

Why it can be good. Auto loans have simple interest, which means that for every dollar you put toward the principal, you pay exponentially less interest to the lender.

Who it can be good for. Anyone who has an auto loan from a lender who doesn’t penalize early payoff or payments to principal.

How to do it. Call the lender and ask how you can make extra payments to the principal only. You should do this because extra payments not to the principal means you’re paying interest — all you’re doing is giving the bank money early. If you make payments to the principal, you’re not paying as much in interest, which is very good.

Round up

If you find it difficult to save money or you don’t have quite enough cash to make a whole extra payment, check out this round-up method.

Why it can be good. You could pay off your auto loan early without changing how often you make your payments.

Who it can be good for. If you have a hard time saving money, this is a good way to do so.

How to do it. If the lender will not charge a prepayment penalty, you have nothing to lose by doing this and you can do it in two ways:

  • Simply round up your monthly payment. For example, if your monthly payment is $350, round up and pay an even $400.
  • Use an app, such as Acorns, to round up what you pay on all of your purchases to the nearest dollar and then pay that money to the auto loan. For example, if you got gas for $15.30, the app would round the charge up to $16 and $0.70 could go into your savings account. A little goes a long way and by the end of the month, you may have $50 you could put toward your auto loan.

Avalanche versus snowball

We’re not talking about the weather; these are two popular methods used to pay off debts faster. The avalanche method prioritizes paying off high-interest debt first. The snowball method involves paying off your debts starting with the lowest amounts. You can read about more debt payoff methods here.

Why it can be good. These are methods that could help you pay off all your debts, not just your car loan.

Who it can be good for. If you have multiple loans or debts, these methods may help you organize them and pay them off.

Snowball method: how to do it. This is a three-step pattern that should allow you to “snowball” your money to pay off your car loan faster.

  1. Look at your loans and rank them from lowest to highest.
  2. Then focus on that smallest loan, paying it off as quickly as you can with any extra cash available while making minimum payments on your other debt.
  3. Once it’s paid off, congratulations! You no longer have that payment to make. Choose another loan and repeat the process, using the money you would have paid on the loan you paid off.

Avalanche method:how to do it. This method prioritizes debt with the highest APR. For example, if you’re paying a higher interest rate on credit card debt than your car loan, you may be better off using any extra cash to pay that down first.

  1. Look at your loans and rank them from highest APR to lowest.
  2. Determine how much extra cash you can put toward the debt with the highest interest while making minimum payments on your other debt.
  3. Once it’s paid off, roll the money you were using to pay down that debt into the next one.

Windfalls

Regular extra payments may not always be realistic for your budget, but if you get any money outside of your budget that you didn’t count on, using that money as one-time extra payment toward the principal could really help.

Why it can be good. Any “windfalls” you have, such as a tax return, a refund, a bonus, a big tip or a pay raise, can be put toward the principal on your auto loan.

Who it can be good for. If you were not counting on the windfall, the extra money you got is just that — extra money. By using it as a payment to principal on your auto loan, you’ll save more money because the less you owe, the less interest you’ll pay.

How to do it. It might take some self-control, but use the windfall cash to pay the auto loan. The sooner you’ll pay it off, the more money you’ll have later to spend on things you’ll enjoy.

Make extra income

If your regular paycheck isn’t able to stretch any further, consider a side hustle and put the earnings toward your auto loan.

Why it can be good. A part-time job a few hours a week could add up to enough cash to make a significant dent in what you owe.

Who it can be good for. Anyone with some extra free time may be able to find a part-time job, temp work, freelance assignment or other gig.

How to do it. Depending on what you’re willing and able to do, you could sign up at a temporary work agency, look on job sites and/or talk to people you know about any job opportunities. Just remember to spend the money you make on paying off the principal of the auto loan. You can check out 15 legitimate places that will pay you to work from home and 5 ways to make extra money that don’t take much time.

Remove extra expenses

What are you willing to cut out of your budget or give up to pay off your car loan faster? Again, every bit helps, if the extra cash goes toward the principal of your auto loan.

Why it can be good. If you aren’t willing or able to make more income, spending less can be an equally good option and, as a bonus, you can keep doing it even after your car is paid off and save the money.

Who it can be good for. Practically anyone could do this.

How to do it. Take a look at your credit card statement or write down what you buy so you can see your spending habits in black and white. Then, decide what you could cut out or possibly get a better deal on — it might add up to more than you think. Maybe you could eat out once a week instead of every day. Maybe you could find cheaper auto insurance. Then apply that savings to your auto loan principal.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Dealer Fees to Know When Buying a Car in 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Don’t pat yourself on the back too early if you’ve just negotiated a great price on a new car. No, you’re not done yet — not when auto dealers can add thousands of dollars in the form of fees and products to the price of that new car, truck or SUV.

After all, there’s a reason why the term “sticker shock” comes from the auto dealership world. The good news? You don’t have to take onerous dealer fees lying down.

Sure, there are some new vehicle fees you’ll have to pay. There’s no getting around destination charges and fees that may be required by your state or county, such as title and registration costs. There are, however, good reasons to steer clear of — or negotiate — dealer add-ons such as extended warranties and GAP insurance. This story will help you understand the differences between fees you’ll have to pay, what’s negotiable, and fees you should avoid at all costs.

The auto dealer fees you must pay

You’ll see these fees on your final auto purchase bill and there’s no way around it – you have to pay them:

Destination fee

New vehicles don’t drive themselves to dealer lots (although that day may be coming).

For now, the auto manufacturer delivers the vehicle to the dealership and there’s a fee to be paid for that — one that you, the buyer, have to pay. Expect to pay hundreds, or as much as $1,000-plus, for the mandatory destination fee.

You’ll see the destination fee listed on the window sticker and there’s no point in negotiating it with the dealer, though it should be noted that some manufacturer destination fees are higher than others. You should read the sticker carefully to make sure the dealer is keeping mandatory destination fees separate from negotiable “delivery” fees. These so-called secondary destination fees, such as delivery inspection or dealer preparation fees, are negotiable. We’ll discuss them in more detail later.

Title, tag and registration fees

These are also mandatory, this time by your state or county. These fees funnel through the dealer, typically to your state’s department of motor vehicles, stamping you as the owner of your new vehicle and pays for your temporary tags that get you roadworthy.

Expect to pay as much as $250 to register and title your car, dependent on the state where you reside.

Documentation fee

Another “must pay” fee, the documentation fee is the fee the dealer charges for handling all the red tape and generating the administrative documents needed to process your new car acquisition.

You’ll see this fee in advance on your new vehicle contract and, depending on your home state, the fee can cost between $100 and $500. Some states cap the fee. You have to pay this fee, but there’s no rule that says you can’t ask the dealer to lower the price of the vehicle by the exact amount of the documentation fee. Learn more about how to negotiate car price.

Sales tax

In most states, you’ll need to pay a sales tax on your new car, truck or SUV, but the amount charged not only depends on the state where you reside, it also depends on whether your state charges for the full price of the vehicle, or the total price minus the value of any trade-in vehicle that was included in the deal.

If you purchase your vehicle out of state, you’ll pay the sales tax when you receive the vehicle and you register the vehicle in your state of primary residence.

Your sales tax depends on the tax charged by your state, but sales tax fees can generally range from 3% to 9% across the U.S., including county and local sales taxes. Many dealerships will roll sales tax into the title and registration fees we discussed earlier into one TT&L (tax, title and license) fee. Some dealers say to expect to pay between 8% and 10% of the sales price in taxes and fees. This rule of thumb applies to new and used cars.

How much car can you afford? This story might help.

Vehicle inspection fee

A new vehicle must pass certain inspections before it can be sold, based on the standards and criteria mandated by the state where the vehicle owner resides.

The fee, which is paid for by the dealer and passed on to the customer, doesn’t amount to much (about $7 to $30 per vehicle, dependent on your state.) The low fee isn’t really worth the trouble of negotiating it off of the total car price, but it is a fee that has to be paid.

These auto dealer fees should be avoided, contested or closely considered

You may see these auto dealer fees on your new vehicle contract but in most cases, you can avoid them, or at least contest them.

Advertising fee

You might think that it’s up to the dealership to pay for its own advertising and promotional costs, but you’d be wrong. The fact is, an advertising fee can appear on your new car invoice listed as a component of the vehicle’s manufacturer’s resale price or it can appear on your contract as a separate cost.

You can contest this fee and negotiate directly with the dealer — it’s not mandatory. If you don’t, you may pay several hundred dollars for the fee.

Extended warranty

Technically a product, an extended warranty covers any significant repairs needed on the vehicle after the original manufacturer’s warranty expires.

You don’t have to pay for an extended warranty, so feel free to avoid it altogether.

If you change your mind, and decide that an extended warranty is worth the cost, you can also go back to the dealer and buy the warranty later, but before the original warranty expires. The cost of an extended warranty isn’t cheap — anywhere from about $1,000 to several thousand dollars — but compare that with the cost of paying $4,500 for a new engine after the original warranty expires.

Dealer preparation fee

Often, auto dealers will charge a dealer preparation fee for cleaning up the car for you before you drive it off the lot. There is absolutely no need to pay this fee, which can range from $100 to $400.

Think of the fee this way — why should you pay extra for a fee to clean up a new vehicle that you just paid $35,000 to purchase? Shouldn’t the car appear clean, shiny and free of any problems at closing? Take the mindset that, yes, it should, and fight the fee accordingly.

Rustproofing and undercoating fee

Dealers will also try to stick you with so-called “treatment” fees that protect against Mother Nature and rocky roadways. The fee, which can cost around $800 to the dealer, aren’t really necessary in this day and age, as manufacturing technology has provided better protection for undercarriages and vehicle exteriors.

The dealer may also charge for other “appearance” packages including window tinting and tire and wheel warranties. These are also optional, so consider each one carefully, including cost and how important they are to you.

GAP insurance costs

In some cases, buying GAP insurance if you’re buying a new vehicle and want to add extra protection may be a good idea — it can cover the “gap” between an auto insurance claim payment and the amount of money owed on a heavily damaged or destroyed vehicle.

The thing is, you don’t have to buy it from the lender or dealer. In doing so, costs can be as high as $700 or more and is rolled in to your car loan, which also includes interest paid on the total loan, boosting the GAP insurance price up higher. Better to shop around among insurance companies who’ll likely offer you a better deal and cut out the dealer altogether from GAP insurance.

VIN etching fee

Your dealer may also try to sell you a theft-protection tool called vehicle identification etching, or “VIN” fee, which covers the cost of etching your VIN on the vehicle’s front window to thwart auto thieves.

While it’s always a good idea to protect your vehicle anyway you can, there’s no reason to have the dealer do the etching for $200 or more, when it only costs them $25 to do the job. A mechanic can do the job for much less. Some counties will offer the service free, so check with your local government office.

Stand your ground

When you’re in the throes of love for that brand-new vehicle you just purchased, it’s easy to gloss over fees and extra costs that dealers love to charge to pad their bottom line.

Don’t fall for many of those fees. While some extra costs are mandatory, there are plenty of new car dealer fees than can and should be avoided.

Stand your ground and use the tips above to make sure you’re not paying more than you should for your new car. Dealers also love to pad your APR, so in addition to the fees we described here, don’t make these common mistakes when shopping for an auto loan. Before heading to the lot, research the best auto loan rates.

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APR

As low as
3.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.