Automotive Loans: The Truth About "Add-Ons"

by Amy Lillard

(1/31/2013) After the car has been chosen and the price negotiated, car buyers can often feel like the process is over. That’s when dealers will offer a rapid-fire series of add-ons and options. Ready to finish and drive the new car off the lot, consumers will often agree to these additional equipment and services, offered at “only” few extra dollars a month.

The ugly truth is that most of these services are unnecessary, overpriced, and can ultimately tack on thousands over the life of an auto loan.

Knowing about these add-ons, and being prepared to knowledgeably buy or pass on them, can give you the power to stay in budget and keep that good deal.

• Extended warranties. Most cars, new and used, have an original factory warranty for at least three years. Extended warranties do just that — extend the term of the warranty. But for consumers who don’t keep their cars past a few years, it’s an unnecessary expense. If you do decide to get an extended warranty, the option offered by the dealer is probably overpriced. Before heading to the dealership, get several price quotes from local dealers on extended warranties of 5-10 years. This will provide powerful knowledge to negotiate with.

• Rustproofing. Dealers routinely offer this as a protective measure for new cars. But most already have this service performed at the factory, and provide for any rust or corrosion that does happen in their warranties. In fact some manufacturers void certain parts of this warranty provision if rustproofing (or “undercoating”) is performed by a third party.

• Fabric and paint protection. This is another service that’s unnecessary, but pitched nonetheless by some dealers. Manufacturers use materials and fabrics in cars that already resist most stains and/or can be cleaned easily. And if buyers want some additional protection, they can do it themselves with products from the local store, like Scotchgard. As for paint, most car paint today is durable, with no need for additional sealant or treatment.

• Loan insurance. Dealers may try to convince you of the need for life insurance or disability insurance to provide for your car loan in case of death or injury. Typically, insurance through work covers these scenarios, and life insurance is available elsewhere for reduced cost. Dealers may also offer “gap insurance,” covering you if you owe more on your auto loan than the car is worth when trading in. While this may be a smart investment if you plan on trading in a few years, it may be overpriced. Research the cost before purchase.

• Other equipment add-ons. Depending on the dealer, watch for attempts to add the cost of running boards, chrome wheels, or dealer-installed alarms to the bill. All may be unnecessary and expensive.

Automotive Loans: The Truth About "Add-Ons"

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Amy Lillard

Automobile Buying/Financing

Auto Insurance

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