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Certified Pre-Owned Programs vs. Extended Service Contracts

8/8/2012
There are two primary ways for used-vehicle dealers to provide peace of mind to their customers. The first is through a certified pre-owned (CPO) program backed by the auto manufacturer. The second is through an extended warranty or service contract backed by a third-party provider.

On the surface, it might seem as though actively choosing between one or the other doesn't really matter, as both provide a certain level of protection in the event that the used car requires repair shortly after purchase. However, there are differences between the two approaches.

For a used car to meet certified pre-owned vehicle requirements set by the original manufacturer, it must pass a rigorous inspection and meet specific reconditioning requirements that are designed to make the vehicle as close to new as possible.

In addition, these CPO vehicles typically offer an extension of the original vehicle warranty, which makes it easy to obtain repairs, if necessary, and frequently without needing to pay any kind of deductible. Plus, a CPO vehicle may even qualify for new-car finance rates, which are typically lower than the interest rates for used-car loans.

With an extended service or warranty contract, the used-vehicle buyer pays extra for the protection, which is typically provided by an independent third-party. Used cars sold with extended service or warranty contracts are not required to pass stringent inspection and reconditioning requirements, are not required to be in good condition with low miles, and may not have clean title histories. Check carefully to be sure the service contract provider has a good reputation and is on solid ground, financially.

Furthermore, extended service or warranty contracts typically require the vehicle owner to pay a deductible for each repaired component or for each repair visit, and may even require the vehicle owner to pay the repair bill in its entirety and submit paperwork for reimbursement.

When buying a used car and trying to decide whether to get a certified pre-owned vehicle backed by an auto manufacturer or a used car with an extended warranty or service contract, it is important to remember that any used car can be sold with the latter, whereas only selected vehicles--depending upon each manufacturer's standards--are able to meet CPO standards.

Beyond this issue of vehicle condition, however, CPO programs are generally easier to use, working like the vehicle's original warranty, whereas extended service and warranty contracts typically require the used car buyer to invest more into the game.