By Patrick Brick and Patrick Campbell | Consumer Finance Protection BureauDecember 11, 2018
Like a well-prepared service member, you did your homework.
You shopped for auto financing. You decided whether a new or used car was right for you. If you traded in your old car, you got a great offer and the right price for the car you wanted. You worked out a great rate. As you near closing the deal, and are dreaming about taking a victory lap in your new car or truck, the car dealer may bring up another topic: how many and which add-on products they might interest you in.
Add-ons are additional products or services offered by the dealer, and they can add significant cost to the deal. They may be physical additions to your car like window etching; rustproofing; security items; or accessories like spoilers, pickup truck bed covers, or pin or racing stripes. Add-ons can also include extended warranties; service contracts; guaranteed auto protection (GAP); or tire, dent, paint, and fabric protection packages. When promoting these items, some dealers may emphasize the utility of these and other add-ons to service members or military families.
Add-ons may significantly vary in cost from dealer to dealer, so be sure to shop around if you think you want one or more of these products. Negotiating for the lowest price you can get is always a good idea. Also, unless you're paying cash for these add-ons, the extra items will increase your monthly payment and the total amount financed on the car.
These add-on products and services are generally optional, so you're not required to purchase them. Be ready to say "No, thank you" if you're offered add-ons that you don't want or need. And be certain to review your contract to ensure it doesn't include items you don't want.
If you do want certain add-ons, be sure the amount in the contract is what you agreed on. And keep in mind that you can shop and compare alternative sources for most add-ons offered by the dealer. This way, you can compare any products and services you may want, take time to consider them rather than deciding on the spot, and look at payment options that aren't financed with the car, on which you pay interest. Certain add-ons may also be cancellable for a refund after purchase of the car. Here are some tips from the Federal Trade Commission (FTC).
Commonly offered car add-on products
Guaranteed Auto Protection (GAP)
GAP covers the difference--or gap--between the amount you owe on your auto financing and what your insurance pays if your vehicle is stolen, damaged, or totaled. The terms in GAP contracts vary, so if you're interested in this product, check in to the coverage and cost from different sources.
Keep in mind:
You only need GAP during the time that you owe more on the car than it's worth. It may be useful to find out in advance what you need to do to cancel the coverage.
You can purchase GAP from different sources. If you purchase GAP from the dealer, the amount is added to your amount financed, and you'll pay interest on it, increasing your monthly payments and total cost. GAP is also offered by some insurance companies -- check to see if it's already included in your auto policy. A bank or credit union may also offer GAP if you finance with them. And you may be able to pay for GAP upfront, avoiding additional interest in your monthly payments.
If you're considering GAP, here are some things to keep in mind:
GAP may not cover overseas travel, including service members on deployment. Check to see if there are exclusions from or conditions on coverage, including location, in any GAP plan you're considering. We heard from one service member who paid nearly $700 for GAP only to find out that the coverage was void if the accident occurred overseas. When his vehicle was in a crash while he was deployed in Germany, the GAP provider didn't reimburse him for the loss.
If you don't make regular payments when due, you could be in default and lose your coverage. One service member missed a GAP payment and when a family member totaled the car, the GAP provider wouldn't pay for the loss due to the missed payment.
Check to see if the GAP you're considering covers amounts that are rolled over into the new financing, if you still owe money on your trade-in. Some plans may not cover this "negative equity" situation.
Some GAP plans may require a deductible payment before they apply. Find out if there is a deductible on the GAP you're considering, and how much it is.
Service contracts or extended warranties
A service contract is a promise to perform, or pay for, certain repairs or services. Sometimes called an "extended warranty," a service contract isn't a warranty as defined by federal law.
While an extended warranty that you purchase might be worthwhile for some buyers, extended warranties sold at the dealership might add hundreds of--or in some instances, more than one thousand--dollars to your purchase, plus financing costs.
There may also be exclusions or conditions that apply. Look through all of an extended warranty or service contract to find out what is actually covered. Few service contracts cover all repairs. Common repairs for parts like brakes and clutches are generally not included in auto service contracts. The best advice: if an item isn't listed, assume it's not covered. Watch out for absolute exclusions that deny coverage for any reason. For example: if the contract specifies that only "mechanical breakdowns" will be covered, problems caused by "normal wear and tear" may be excluded. If the engine has to be taken apart to diagnose a problem and during the process the mechanic discovers non-covered parts that need to be repaired or replaced, you may have to pay for the labor involved in the tear-down and re-assembling of the engine.
If you're considering buying an extended warranty or a service contract from a dealer, be sure to ask the following questions:
• Will the warranty or service contract work overseas?
• Does the service contract duplicate any manufacturer's warranty coverage?
• What is the length of the extended warranty or service contract
• Who backs the extended warranty or service contract?
• How much does it cost?
• What specifically is covered?
• How are claims handled?
• Are new or reconditioned parts authorized for use in covered repairs?
• What are my responsibilities?
• Is the warranty or service contract cancellable?
If you're interested in an extended warranty or service contract, try to avoid making the decision on the spot in the dealer's finance office. Instead, research your options and comparison shop in advance.
(Editor's Note: This is the fourth post in our blog series written in collaboration with the FTC. Read the first three posts in the series on shopping for auto financing, making the decision to buy a new or used car, and how to trade in your car. Learn more about auto financing and the car buying process at www.FTC.gov/cars and at www.cfpb.gov/auto-loans.)