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Not sure if this should be here or in a legal area, but it has to do with buying a used car, so hopefully it fits here.

My wife and I just purchased a used car (2007 Toyota), and the finance person who was doing the paperwork said it was "required by law" for them to offer an extended warranty on this 10-year old vehicle. We declined the "great discounted deal" offer, but had never heard before it was required by law to offer an extended warranty. This seemed dubious, and the final listing of costs was also packed with a hidden $300 window etching "theft recovery option" which we also declined. This was in Iowa, USA at a Toyota dealership, so it wasn't a hole-in-the wall place.

So my question is whether she was right, or if it was a bogus ploy? My guess is bogus, and if so, I have no qualms about calling them on it.

  • This will depend on local / state laws, but, for me, requiring this on a 10 year old car seems odd. I was offered one on my car which was bought and paid for by the seller, but it was optional. If the purchase is under finance then that may be different. – Solar Mike Jun 11 '17 at 6:45
  • It's a stealership. They love padding the final invoice with all kinds of fees. My favourites are: 1) the vehicle prep fee (do they need an automotive psychologist to break it to the car that it's going to live somewhere else now?), 2) transportation fee (so the advertized price is for the car at the factory? It's more than the cost of a plane ticket to the factory. Can't I just pick it up there?) and 3) nitrogen in the tires (what's wrong with air?). – tlhIngan Jun 11 '17 at 15:24
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tl dr: In a word, No.

(Note: Most of this applies only to the US)

From the Iowa Legal Aid website, it states:

Used car dealers may also offer a service contract for an extra fee. Such a contract, also called an extended warranty, usually covers more repairs for a longer period of time. It's still important to know what is and isn't covered because many times extended warranties cover too little to be worth their cost. A used car extended warranty usually isn't as good as a new car extended warranty the manufacturer offers. Before buying an extended warranty, find out the following:

  1. If the extended warranty covers all parts and systems of the vehicle;
  2. If a deductible is required;
  3. If routine maintenance has to be done at the dealership;
  4. If the extended warranty can be cancelled; and
  5. If the extended warranty covers towing and rental car charges while your car is being repaired

I'm not a lawyer, but in legalese the word "may" is used to suggest it is not a requirement and in this case is up to the seller. If it were a requirement, the word would be "shall".

Having worked as a car salesman before, I can tell you this is exactly a ploy of the sales force to get you to purchase more things which your vehicle doesn't really need or if you'd like them, the cost will be extravagant compared to what you can get it for elsewhere. There are four different ways a dealership can make money off of you:

  • Mark up on vehicle being sold
  • Giving you less on a trade in than it's worth
  • Aftermarket, such as your extended warranty, plus any other add-on
  • Finance (typically called "holding points")

In your case, the add-on being the extended warranty. While extended warranties are a lot better than what they used to be, you can get them through your financial institution or even research and purchase your own for a lot less than they will sell it to you at the dealership.

When you go to purchase a car it is good to several things so the dealership isn't robbing you blind. Here is how you counteract the four ways the dealership makes money:

  • Markup: Be an informed consumer. Look up on the internet to see what a car is worth. New or used, there are sites out there which will tell you the worth of the car. Ensure the dealership isn't overstating their hand.
  • Trade-in Value: As with above, look up on the internet to see what your car is worth. Sell your car outright to an individual using CraigsList or what have you if you can, as you'll get more money out of it. This is a little harder process, but it will save you big in the end. Dealerships will greatly under value your car, or at least they won't offer you the full value in an attempt to make more money off of you.
  • Aftermarket: Don't take whatever they are dealing. We used to offer undercoating, Scotchgard (fabric protectant), and paint sealant for ~$400. It only cost the dealership $60 to get it done. You can save yourself similarly if you just do it yourself (everything is available commercially).
  • Finance: Dealerships do what's called "holding points". What this means is, they will look at your finance records, can get you bought on a car at x% finance rate, but will then turn around and sell you the car at x+1% (IE: you can get a loan for 4%, yet they come back and sell it to you at 5%). The extra point they sell you at is profit for them, which the financial institution they are dealing with pays directly back to the dealership in the form of profit. The best way to combat this is to have your own financing prepared before you get there. Always give the dealership the chance to offer their own financing, but tell them you can get bought at another institution for X%. If they can beat the percentage, go with it. No sense costing yourself more money.

Personally, I realize the dealership is there to make money. I don't mind them making some money off of me, I just don't want them to make all their profit off of me. An informed consumer is a consumer who makes a good deal.

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