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Would you or better yet, should you buy a pre-paid car maintenance plan?
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.
Charlotte is commenting about CPO cars (certified pre-owned cars) not about my blog post which is about pre-paid maintenance plans. Still, I wanted to respond to her message to clear up a few points. She seems to be concerned that a CPO car she bought might not have had the proper service performed on it, or maybe she is concerned that she paid too much for the CPO car. First of all, when a car is serviced at a dealership, that information goes into their data base. This means that the dealer knows what service has been performed and if it has been serviced correctly. Also, Charlotte mentions that CPO cars are evaluated at "excellent" condition levels. This is true because they are, in fact, in excellent condition -- that's why they are being certified and sold by the dealer under a special program. It is true that you will pay more for a CPO car but you are getting a higher value: the car has had an extensive pre-purchase inspection, the car is in excellent condition and the car is being sold with an extended FACTORY warranty. Really, buying a CPO car makes the used car shopping experience much easier. We offer True Market Value prices for CPO cars on Edmunds.com and we have information on all manufacturers' CPO programs at: http://www.edmunds.com/certified-cars/
Philip Reed, Senior Consumer Advice Editor, Edmunds.com
Recently, I took Phil's advice. Here are some of the not good things I have learned. I did a reasonable amount of research using Cars.com, Edmunds, Autotrader and the Kelley blue book. According to one of those sources - I forget which - when CPO cars are valued they are valued as if their condition is excellent. However, I have been told by my dealer there is no requirement on the part of leasing agents for the leasee to perform regular services. A car with more than 30K miles on it may not have had a 30K major service, the oil may never have been changed. Also the Dealer may not have been the leasing agent. Dealers buy cars leased by other agents specifically to sell as CPO cars. These dealers do not necessarily see the need to know anything about the condition of the car. At this time I am feeling very foolish - buyer beware - But it seems to me my dealer is looking very sleazy and the online information services need to change their evaluation practices
