When you buy a new car, the finance manager might try to sell you a pre-paid maintenance plan. On the spur of the moment, this might sound like a good deal (of course it sounds good -- it's a sales pitch). But we took a look at this offer and found that it really doesn't save you money. And, if they are offering to bundle it into your contract, it might be hard figure out what "just another $9.99 a month" adds up to over a five-year loan.
First, this is pre-paid maintenance, not repairs. Your new car is already covered for possible breakdowns by a 3-year/ 36,000 mile bumper to bumper warranty. So what exactly does the pre-paid maintenance plan cover? For new cars the maintenance required is really only oil changes (and the average oil change intervals is now 7,500 miles, not the 3,000 miles the quick lube stores push) and tire rotations. So for a typical car, the pre-paid maintenance plan will cover only about five trips to the dealership's service bay. At about $75 per visit, that is a $375 value. So you have to be able to get the pre-paid maintenance plan for this price or less to actually save money.
There are, however, some other marginal benefits to such plans. It makes getting in and out of the dealership faster since you don't have to go to the cashier's window at the end of the day when a lot of people are paying for repairs. Also, you have the peace of mind that your expenses are covered since you've paid up front for the work to be done. But most financial managers would agree that it's better to keep your money in your pocket -- and pay as you go -- rather than laying out your money up front.
For more information on pre-paid maintenance plans, click here.
And to see what maintenance your car will require see our maintenance section.