The 0% and superlow interest rates on car loans currently offered by automakers are a chance for many savvy dealers to sell more add-on services, such as extended warranties, theft protection and insurance, to new-car customers. Some extras can be useful, but only if they are priced right.
Often, dealers offer these extras as a package instead of as stand-alone items. This strategy -- designed to sell more items -- is often presented as a "protection package" and usually offered in three levels: bronze, silver and gold. Known as menu selling, this approach makes it easier for a dealership to ensure the salesman presents all the extra items or services the dealership offers. It also gives the salesman an easy way to make a customer feel as though these packages are not optional, even if they are.
Although it may seem underhanded, this strategy of selling extras by offering a menu of packages is no shadier than what happens in many other sales situations.
So what extras should you buy? It depends on the price and whether you really need it. Life insurance and other nonvehicle extras are almost always unnecessary and can be purchased for less elsewhere.
Gap insurance
One type of useful insurance you may be offered is GAP (guaranteed auto protection) insurance, which pays the difference between what you owe on your loan and what your car is actually worth. Buy gap insurance if you are leasing a car -- if it's not already included in the lease agreement -- or if you are getting a car loan for more than the car is worth, like when the remainder of your previous car loan is rolled into the new car payment. Still, it's best to research the costs of gap insurance so you know if the dealership is offering you the best price.- MSN Autos: Glossary of leasing terms
Smaller services
Services such as VIN etching, paint protection or fabric protection generally aren't worth it. You can do these things yourself or take your car to a detail shop later and most likely pay less. Stolen-vehicle recovery services are probably not worth the extra money either, unless you are buying a high-theft vehicle and driving it in an area where it's likely to be stolen. If you decide you need any of these extras, research the cost elsewhere and then compare it with the price offered by the dealership.Extended warranties, which kick in after a manufacturer's warranty has expired, and service plans, for which you purchase a book of coupons for recommended maintenance and roll it into your monthly payment, are also often not worth it. Consider an extended warranty only if you expect to own the car well past the manufacturer's warranty. Prepay for regularly scheduled maintenance only if you are sure you will want to go to that dealer for your service. If you purchase either of these options, take the time to research the service costs from other sources.
Be clear on exactly what's included and what will happen to your money if the company that backs these products (which may not be the dealer or auto manufacturer) goes out of business. Keep in mind that rolling these extras into your car loan means you'll pay interest on them.
Finally, remember that while you may be presented with three choices of packages, you can decline them all. You also can negotiate car services individually if you want just one. Later, you can cancel many services, such as an extended warranty or a service plan, if you decide you don't want them. Items that are attached to the car, such as VIN etching or a stolen-vehicle recovery system, usually cannot be canceled. Be sure to read any paperwork so you understand the cancellation policy.
This article was reported by Tara Baukus Mello for Bankrate.com.
Published July 7, 2010
