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What's the Difference Between a Warranty and a Protection Plan?

Finance | 01/06/2023 00:00
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When you buy a new car, a factory warranty always comes standard. Warranties are essentially a promise from the dealership that they stand behind their product and that if something goes wrong, they will be sure to fix it for you. But vehicle protection plans are a separate thing entirely. So how do vehicle protection plans work, and how are they different from warranties?

Here’s everything you need to know about warranties and vehicle protection plans, and how you can decide if a vehicle protection plan is worth it.

vehicle protection agreement

What is a factory warranty?

Factory warranties have been offered for almost one hundred years as a promise to the consumer that the car manufacturers stand behind their products. In the early years of car manufacturing, “buyer beware” was the slogan of the time. Henry Ford decided to offer a warranty to give peace of mind to consumers, covering “90 days on material; 30 days on labor. No guarantee whatsoever on fan belts, glass, bulbs, wiring, transmission bands, hose connections, commutator shells, rollers, spark plugs or gaskets.” 

While that warranty is nothing compared to today, it set the stage for the future. That 90 day guarantee became standard with auto purchases up until the 1950s. At that time, manufacturers began to cover more and more parts, but realized that there needed to be a time or mileage limitation to keep the warranty reasonable. 

As competition emerged at home and abroad, warranties became a marketing tool. At times, these warranties cost manufacturers a lot of money when they were not producing quality materials. And while this hurt them, it also encouraged them to make better quality vehicles that could stand up to the competition (and not need warranty repairs).

Today most new cars come with limited warranties. They either come with a bumper-to-bumper warranty, limited powertrain warranty, or both. 

Limited bumper-to-bumper warranty: covers most things that can go wrong on your car, generally only excluding things like wear and tear and theft

Limited powertrain warranty: covers the parts of your car that make the car drive, such as the drivetrain and the transmission

The term “limited” means that it is for a limited amount of time, typically three or five years or a certain amount of miles, whatever comes first. Many dealers will offer a combination of these two types of warranties, such as a three year limited bumper-to-bumper warranty and a five year limited powertrain warranty. This gives owners an additional two years of coverage for the main components of the car.

Kids car safety

What is a vehicle protection plan? 

The problem with warranties is they don’t last forever. And when they expire consumers may feel significant unease that they will be on the hook for some expensive repairs. That’s when a vehicle protection plan comes into play.

Vehicle protection plans are designed to cover much of the same things that a warranty covers. Coverage will vary greatly from plan to plan, but typically a vehicle protection plan will cover:

  • Engine

  • Transmission

  • Drive Axle

  • Electrical Components

  • Brakes

  • Suspension

  • And more

Let’s say you have a three year bumper-to-bumper warranty and your car is financed over four years. Your warranty expires and your transmission goes when you haven’t fully paid your car off yet. Now you are on the hook for a $3200 repair bill (and you don’t even own your car yet!)

If you are like a lot of people, you don’t just have $3200 laying around that you don’t need. A bill like that would cause a serious problem for many people in the United States. In fact a recent Prudential study found that only 50% of Americans have more than $500 in savings. So a big car repair would really throw your finances into disarray.

But if you had a vehicle protection plan this would not be the case. The vehicle protection plan would cover the new transmission and labor. 

You may be asking “Aren’t I just paying for the protection plan in place of the repair? What is the benefit?” It’s true that some vehicle protection plans are paid for up front. That one sum can save you hassle and headache when something does go wrong. But what is even better is if you can pay in monthly installments. Auto Approve allows you to bundle a vehicle protection plan with your car loan. So instead of paying it all at once, you are just paying a little extra every month on your financing payments.

It is important to note that vehicle protection plans do not cover everything. The following are commonly not covered by vehicle protection plans:

  • Tires

  • Paint

  • Exhaust systems

  • Replacement light bulbs

  • Vehicle batteries

  • Shocks

Essentially vehicle protection plans do not cover maintenance or damage due to wear and tear. Vehicle protection plans also do not replace your regular insurance, which would cover repairs from accidents.

Is it worth it to get a vehicle protection plan?

So the million dollar question is: is it worth it to get a vehicle protection plan? Well, it depends a lot on your situation. For many people vehicle protection plans are unnecessary. If any of the following apply to you, it might not be worth it:

  • You like to work on your car yourself and do not want to be obligated to take your car to a mechanic.

  • It’s your secondary car that you do not rely on. If your car is in the shop for a while it won’t be a big deal for you. 

  • You are thinking about getting rid of your car in the very near future.

A vehicle protection plan might be a good idea if you prefer taking your car to the mechanic, depend on your car a lot, and plan on keeping your car for a while. And there are a lot of benefits to getting a vehicle protection plan.

Clients reading the vehicle protection agreement

It offers peace of mind.

One of the biggest reasons people like vehicle protection plans (and warranties in general) is that it provides you peace of mind. There is not a cloud hanging over you of what could happen. You know that if something goes wrong with your car, you are covered.

It can protect your car’s financing.

If your warranty ends before your loan repayment period is over, a vehicle protection plan is a great idea. Consider our example above, where the warranty ended at three years but the loan repayment period was four years. If something happens to your car after the warranty is over but you still have to make payments, you will be in a very undesirable position. If you are unable to afford to fix your car, you will still be making payments on a useless car. But a vehicle protection plan can fill that gap and ensure you are covered.

There are usually extra perks.

Many vehicle protection plans offer other perks in addition to paying for repairs. For example, a vehicle protection plan with Auto Approve comes with the following perks:

  • 24/7 roadside assistance

  • Up to $50 per day rental reimbursement

  • Courtesy towing

  • Your choice of certified-ASE mechanic

When something goes wrong with your car, there are always additional costs that you may not think of immediately. But a rental car and towing can add a lot onto a repair bill (and add further stress to an already tight budget). But a vehicle protection plan will help you pay for all of these costs while your car is repaired by a certified mechanic. Afterall, you have to be sure that the repairs will be done correctly, so a certified mechanic is always a good idea.

It can help you plan for emergencies.

Ok, so you can never really plan for emergencies. But you can try to be as prepared as possible for when something happens. It’s always a good idea to have an emergency fund (even if you get a vehicle protection plan, you should have an emergency fund as well). But vehicle protection plans give you another way to be prepared. And by rolling your payments into your financing payments you can easily get a vehicle protection plan without worrying about starting a separate account or budgeting it out separately. 

That’s the difference between warranties and vehicle protection plans, and why a vehicle protection plan might be a good idea for you.

Vehicle protection plans give you a little extra protection and coverage in an uncertain world. While it is not a replacement for a regular warranty or insurance, it can help fill in the gap if something should happen to your car.

And the great news is that if you refinance your car loan with Auto Approve we can bundle a vehicle protection plan into your finance payments. This makes it easy and affordable to get extra coverage, plus all of the extra perks that come with a vehicle protection plan. 

If refinancing your car loan is on your mind, contact Auto Approve today! Our experts can help guide you through the process and let you know just how much money you could be saving.

Don’t wait, get your free quote today!


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