The Truth About Used Car Warranties

Most cars these days are sold with a warranty, despite there being no obligation in automotive law to do so. The purpose is twofold: to indemnify the dealer against claims or repairs and to “fill in the gaps” in the coverage afforded by legislation such as the Consumer Rights Act.

The majority of used car warranties are third-party insured warranties from the likes Autoprotect, Warrantywise and Warranty Direct, although some new car manufacturers and car dealers provide in house warranties or obligor (dealer backed) warranties.

The former are covered by the Financial Conduct Authority and the Financial Ombudsman but the latter are not, simply because they’re not insurance based.

Regardless of which version you have, terms and conditions will apply, setting out what the claim limit is, what’s covered and what’s not.

Claim Rejections

The problems which tend to arise unsurprisingly stem from claims being rejected, or the claim limit not covering the cost of the repair.

Claim rejections most commonly fall into three categories:

First is the so-called moral hazard. This is where unscrupulous dealers deliberately sell a car with faults and persuade the customer to make a claim after taking delivery. It’s an old trick but one that’s still widely used.

However, insurance companies have long been wise to this and combat it by simply including a “deferment period” in the policy. This is a period, often 30 days in car warranty cases, following delivery during which claims cannot be made.

Secondly, are the ever-growing exclusions. In some cases, these extend to certain vehicles such as ex-lease vehicles, and inherent, common and regularly occurring manufacturing defects or faults that have been referred to in online forums, mentioned on Watchdog or in general publications. Additionally, they may exclude failure of parts due to them being at the end of their natural life and even parts previously repaired or replaced in the prior 12 months.

Thirdly, rejections relate to past servicing, mileage and information provided by the dealer. Motor traders have to make declarations confirming the vehicle’s mileage, last service and that it has no mechanical defects. If this information is wrong, the warranty company won’t pay out.

The Bottom Line

However, these hurdles can be overcome whether that be via the warranty provider or the seller and these reasons have stimulated the rise in ‘in house’ or ‘dealer’ warranties, the theory being that the dealership avoids FCA oversight, controls the claims process and is not subject to the vagaries of third-party warranty firms.

In reality, of course, there is no “safe zone” which gives the dealer the upper hand. There is a fallacy that exists amongst dealers that by using “in house” warranties they can reduce their VAT on the margin, but HMRC has long been wise to that.

While there are advantages to them, in house warranties do have their limitations, especially when buyers are not easily able to return the vehicle to the dealer which can cause friction with third-party repairers.

The bottom line is if you have a used car warranty problem, phone the motor trade expert for first free legal advice.