Should You Buy an Extended Warranty From a Used Car Dealership?

Buying a used car is tricky enough, but by the time you have the car inspected, negotiate the best price and secure your financing, you'll have a decision to make: Should you buy an extended warranty or not? There are pros and cons to buying extended warranties. In some cases, having a warranty can be a lifesaver; in others, it can be a waste of money. There are a number of factors to consider when determining if an extended warranty is right for you.

Benefits

Buying an extended warranty on a used car can give you peace of mind. Buying a used car is generally considered a smart move because you don't have to absorb the initial depreciation of a new car; however, buying a used car comes with risk. Many used cars have no remaining factory warranty, and you may be stuck paying for any repairs out of pocket if you don't have an extended warranty. An extended warranty will generally cover at least the major components of the car, such as the engine and transmission.

Disadvantages

The average consumer, according to Consumer Reports, pays roughly $1,000 for an extended warranty, yet receives an average of $700 in benefits. On average, extended warranties do not pay off. In a situation where you don't have to use the warranty at all, the entire cost of the warranty goes down the drain. If the cost of out-of-pocket repairs does not exceed the cost of the warranty, then buying the warranty was not a wise financial move.

Considerations

Extended warranties are not created equal. Some warranties cover most factory-installed equipment, similar to a new car warranty; others cover only the major vehicle components. Some extended warranties come with a zero or low deductible, while others come with a higher deductible. The more items the warranty covers, and the lower the deductible, the higher the price for the extended warranty tends to be.

Warnings

New car dealers often sell extended warranties backed by the manufacturer. Because used car dealers do not have the backing of a large automaker, they generally sell warranties issued by aftermarket financial companies. Consider the reputation of the company prior to purchasing an extended warranty, rather than relying on the good reputation of the used car dealer. It's not the car dealer, after all, that makes the decision to approve or deny extended warranty claims. Research the warranty issuer by checking out its Better Business Bureau profile. Reliable companies will have a low rate of complaints, and high rate of resolution of the complaints they do have. Shy away from companies with high rates of unresolved complaints.

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Can I Borrow My Car's Value for Cash I Need?

When you borrow money based on the worth of your car, you are taking out a title loan. You go to a car title loan company, and a lender evaluates your car and gives you a loan based on the car's worth. You hand over the car's title until you pay back the loan. Title loans are available only in certain states, and there is a reason for this.

Legal in Some States

Generally, you need to own the car and possess the title to get a car title loan. As of 2011, 19 states allow title loans: Alabama, Arizona, California, Delaware, Georgia, Idaho, Illinois, Kansas, Mississippi, Missouri, Minnesota, Nevada, New Mexico, South Carolina, South Dakota, Tennessee, Texas, Utah and Virginia. The states that refuse to allow title loans put title loans under the predatory lending category because of the high interest rates title loan companies charge -- sometimes in the triple digits.

About Title Loans

If you need a loan to get you through a difficult time and you have bad credit, a title loan can be a good option for you, but you have to be careful and understand the ramifications. The loan you get is typically due in 30 days. If you are still having financial difficulties and are late with your loan payment, the title company can take your car. Each state varies regarding the particulars of the loan. In Georgia and Alabama, for example, a title loan is a particularly risky venture because those states treat your loan as a pawn, meaning that if you are late with your payment and the title company repossesses your car, the company can sell your car for more than what you borrowed and keep the difference.

A Typical Scenario

Car title loan companies realize that most people cannot pay back the loan in 30 days, so generally, the loan company allows the borrower to pay just the interest at the end of the 30 days and make the loan plus the new interest due the next 30 days. For example, say you borrow $1,000 at a 24 percent monthly interest rate. At the end of 30 days, you would owe $1,240. If you can't pay that, the title loan company typically allows you to pay the interest of $240 with the balance of $1,240 due in 30 days. Title loan companies generally let borrowers roll the loan over this way eight times, at which time the borrower either repays the loan or the company repossesses the car, Leslie Parrish of the Center for Responsible Lending told Edmunds. If you do pay the loan off on the eighth month, on the $1,000 you originally borrowed, you would have paid back $2,920.

Bottom Line

A great divide exists on whether title loans ought to exist or not. People in the predatory loan camp want these loans abolished, calling the practice "legalized car theft," as Jean Ann Fox, of the Consumer Federation of America, referred to them on Bankrate.com. But Eli Lehrer, of the libertarian Center on Finance, Insurance and Real Estate, believes that car title loans are a good way for people with little assets and poor credit to get money. The alternatives to car title loans are usually worse, such as payday loans, pawn shops or loan sharks.

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Six Steps to Selling Your Own Car

Selling your car is a financially beneficial alternative to trading in, as you'll usually be able to fetch a higher price. When you trade a car in, the dealer generally offers you the wholesale value with plans of selling the car at retail value. Selling the car on your own gives you an opportunity to sell the car at, or closer to, the car's retail value.

Determine the Car's Value

Before selling your own car, you'll want to determine an approximate value for the vehicle, so you can set an asking price. Good resources for determining a car's value are Kelley Blue Book, Edmunds.com and the National Auto Dealer's Association guidebooks or website. Consider the car's condition and mileage. You might also want to search for similar vehicles on local dealers' lots and on the Internet to get an idea of what the car typically brings.

Recondition the Car

Consider having the car professionally detailed and serviced prior to selling it. A dirty car that needs maintenance or work may be a hard sell, and it will generally fetch less money. Don't go overboard; most people understand that used cars are not perfect and will have minor imperfections and defects.

List the Car for Sale

Advertise the car to list it for sale. Consider listing it on websites like Cars.com or Autotrader.com. You might also want to run an advertisement in the local newspaper's classifieds section. The purpose of this is to let potential buyers know the car is for sale. You might also want to place a small sign on the car that indicates it's for sale.

Meet with Buyers

Answer any inquiries on the vehicle in a professional manner, and then try to set up an appointment for the shopper to look at and drive the vehicle. Don't let anyone drive your car on a solo test drive. This could open the door for theft. Make sure the person has auto insurance and a valid license prior to letting them test drive the vehicle.

Negotiate a Fair Price

The typical car buyer will usually try to negotiate the sale price, although you may encounter a buyer willing to pay full price. Be firm but fair when negotiating. Expect a savvy car buyer to low-ball you with a price much lower than your asking price. Don't get offended or upset. Instead, counter-negotiate with a price somewhere in the middle of your asking price and his offer, providing it's close to the vehicle's value.

Complete the Sale

You'll need the title and the assistance of a notary to complete the sale. In general, you shouldn't take checks for a car you are selling. If you take a money order, contact the issuer to ensure it's valid prior to transferring the car. In most states, you'll need to fill out a bill of sale -- a document detailing the sale of the vehicle. You can obtain one from any motor vehicle office in your state.

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The Best Auto Loans

The best auto loan rates go to the customers who are best prepared and have the best credit. The major auto loan lenders' top-tier packages are relatively standard. So if one lender is willing to give you a low rate, chances the others will match it. The trick is being prepared and in a position to demand the best interest rate available.

Know Your Credit

Check your credit report and make sure the information on the report is accurate. Errors, no matter the size, can make a difference in your credit score, and thus in your interest rate. Once you learn your credit score, research what local banks are offering customers with your credit history. And don't forget credit unions, which generally offer some of the best deals. If you have a high credit rating you can expect to get more favorable interest rates.

Set a Budget

Having a budget planned in advance and determining the down payment you can afford will go a long way in helping you get the best rate. Knowing what you can afford means you have the knowledge to determine if you can go with the lower rate and shorter payback term or if you need a longer term loan. Auto lenders offer payment terms as long as 80 months. The longer payback term means more interest over the term of the loan and may mean higher fees, as well.

Comparison Shop

Compare lenders and loans offered through dealers, who may have various loan incentives in place when you shop for a new car.

Ask For it in Writing

You know your credit score. You have an idea of the rates that you qualify for from different sources. You have planned out the down payment amount and the pay back term you can afford. Now you have several offers presented to you to consider from lenders and dealers. Make sure you get an offer in writing and list any contingencies that could affect the terms.

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Ohio Repossession Laws

When borrowing money to purchase a vehicle, you get what is called a secured loan. Borrowers can finance their vehicles through the dealership's lending institution or through a third-party private banking institution. As a promise to repay their loan obligations, borrowers pledge the vehicle as collateral, providing lenders with the right to reclaim their property, or collateral, upon default. Ohio's repossession laws mandate notification to buyers from banks reclaiming their property.

No Prior Notice Required

Under Ohio law, banks and lenders do not have to provide car purchasers with notice prior to repossessing vehicles, if the purchasers defaulted on their loan agreements. Creditors can simply tow away vehicles used as collateral with no advance notice. However, lenders must comply with the state's laws allowing repossession only if there is no breach of peace. A breach of peace would be if the lender used physical violence, verbal threats of violence or damaged property during the repossession.

Rights to Reclaim or Redeem

Under Section 1309.623 of the Ohio Revised Code, borrowers who default on their loan agreements have a right to reclaim their collateral by offering a full tender. This full tender allowance provides debtors with rights of redemption if they pay the full delinquency plus any reasonable attorney's fees and repossession costs before the lender disposes of the property through a sale.

Subsequent Notice Necessary

Once a creditor repossesses a vehicle, it must provide the borrower with notice of repossession. Creditors who provide financing through "Buy Here/Pay Here" dealerships and creditors who provide the initial loans but subsequently assign them to third parties, must provide written notification of the repossession and loan default within five days of repossession. The written notice must provide each defaulting purchaser with the total amount in arrears, the steps necessary to reclaim ownership of the vehicle and any pending sale notices. Under Ohio's statutory code, borrowers who purchase vehicles and finance their purchases through vehicle loans are responsible for paying the entire loan obligations, even when lenders sell their vehicles. Buyers are responsible for any remaining loan obligations after the vehicle sale.

Notice of Sale

The notice of sale must contain the date, location, time and minimum sale or bid price for the vehicle. Lenders must also provide written notification to the purchaser of subsequent responsibility for any deficiency remaining after the sale. Lenders who provide independent financing are only required to comply with the notice of sale information.

Considerations

Since consumer protection laws can frequently change, you should not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your jurisdiction.

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How to Find Out the Blue Book Value on a Vehicle

If you are interested in selling or buying a used car, you will need to obtain the current value of the vehicle. One of the most used resources when trying to determine the value of a car is the Kelley Blue Book. This is a resource that can tell you the current market value of nearly any car in the market place. You will need some basic information about the car to get the value you want.

Instructions

1

If you are trying to find out the value of a car that you own, you will need to obtain the odometer reading on your car. If, however, you are simply trying to figure out an approximate value for a particular type of used car, you can avoid this step. You also need to get any other important information about the make and model of the car that you want to obtain the value of, such as the year of the car.

2

There are two ways to access the Kelly Blue Book, either online or by going to your local library.

The library will provide access to a current version in the reference section. Once you have a copy of the book look up the value of your car, or the car you intend to purchase. The book is divided into categories such as sedan, SUV or hybrid and then further broken down into make and model and finally the specific year. Locate this information to find the current value.

3

The second alternative is to access the Kelley Blue Book from your computer. Enter the Kelley Blue Book's website and input the necessary information about your car. You can enter information about the make and model as well as specific features that your car may have such as a DVD system or navigation. Next enter the odometer reading as well as choose the condition of your car. You can choose between three different levels of quality when assessing the value of your car. Try to be as realistic as possible so that you can get an accurate value. Once you are finished inputting the information about your car, you can submit it and the Kelley Blue Book website will provide you with an approximate value. You can select between the third party value, the trade-in value, the suggested retail price or the certified pre-owned price.

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What to Do When You Have an Upside Down Auto Loan

When you have an upside down auto loan, this means that the resale value of your car is less than what you owe on your loan. Although some dealerships offer to roll this debt over into your new car loan, this move can worsen your financial situation because you will be starting your next loan upside down as well.

Wait it Out

Unless you absolutely need to sell your car now, hold onto it and keep making payments until you are no longer upside down. Eventually, your monthly payment will reduce the principal by more money than the car drops in value during the month. If you hold onto the car until you finish paying off the loan, then you will be able to sell the car and keep the proceeds or use them as a down payment on your next vehicle.

Make Extra Payments

If you can afford it, make extra payments on your auto loan to reduce the amount you owe and get yourself out from being underwater. For example, make an extra payment of $200 each month for a year to reduce the loan balance by $2,400 more than what you would have if you just made your regular payments.

Sell to a Private Party

If you do have to sell your car when you are upside down on your auto loan, then sell your car to a private party. Your car can fetch more in a sale to a private party than what you can realize in a sale to a dealer. If you have time to place ads and meet with potential buyers, a private party sale could make up the difference if you are only slightly upside down in your payments. For example, if a dealership offers you $6,000 for your car and you owe $7,000 on it, try selling it to a private party for $7,000 instead.

Be Smart Next Time

When you finally get rid of your upside down auto loan, be smarter next time you buy a car. Make a large down payment of at least 20 percent of the purchase price to give yourself a cushion so you start with a loan amount well below the value of the car. Buy a used car instead of a new car so the car depreciates less quickly. Most importantly, choose a short loan term so your payments keep up with the rate of depreciation.

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