Extended Warranty Scam
Want a Warranty or Not,
This Scam Says You're Gettin' One!
The extended warranty scam is most commonly used in situations where the customer has average to bad credit and is oftentimes coupled with other products like GAP insurance. Even good credit customers fall victim to this scam, but I don't see it happen quite as often.
It's not the worst of the car buying scams I've seen, but it's still an out right lie and you'll want to know how to protect yourself.
What's covered below:
- What Is This Car Buying Scam
- How It Can Actually Be Beneficial
- How To Avoid This Car Buying Scam
What Is The
Extended Warranty Scam
Simply put, it's when a finance manager tells you that a bank is requiring you to have an extended warranty and/or GAP insurance to get approved for an auto loan.
They may also tell you that it's required to finance for the extended term you needed to keep payments down and/or to protect the lender in the event of total loss (GAP insurance).
Or, the vehicle you're buying has over 100,000 miles and the only way they could get the auto lender to approve your loan was to include an extended warranty. They'll tell you it's to protect the lender from a breakdown, which you may not be able to afford to fix and could lead to a repo...
All of these scenarios are in my opinion a form of forced insurance and...Couldn't be further from the truth!
No bank, by law, can require you to buy any of these products in order to get financed.
How The Extended Warranty
Scam Can Actually Be Beneficial
I've found through my experience (this is in no way meant to be judgmental, I'm simply stating my observations), that most customers I've met that would be considered credit challenged, have limited incomes and extended warranty and GAP coverage are very beneficial to them.
That being said, I don't feel that anyone has the right to make up your mind for you and definitely doesn't have the right to force you to buy these by telling you out right lies.
If you do see the value in these products, that's great! Just be sure they are not trying to rake you over the coals to buy them. Take a look at my vehicle extended warranty page for some key questions to ask and more details on how to buy warranties right.
There are two sides to every loan...
When structuring auto loans there are two sides to a loan, a front and a back side of the loan.
Usually the front side of the loan is very limited for bad credit auto loans and the dealership will try to make up for this on the back side of the loan.
So what's the back side of the loan? You may have already guessed this, it's the side the products like extended warranties and GAP insurance fit into.
By making up for lost profit on the front of the loan they will oftentimes jack up the sale price of warranties and GAP.
Just know that these prices are negotiable and the products are optional. If you want them to lower the price tell them so...If they won't, then you have the option to pass on them.
How To Avoid
The Extended Warranty Scam
The best way to avoid this scam is to keep in mind what we just covered above. These products are optional and you do not have to buy them.
Pay close attention to what you are signing and read your contract carefully to ensure that these products are not being stuffed into your Vehicle Sales Contract.
If you read your contract closely and keep in mind that no "insurance" sold by the dealership has to be bought, then the extended warranty scam is easily avoided.
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