New and Used Car Extended Warranties Explained - The Definitive New Zealand Guide
Our guide explains new and used car extended warranties - learn how they compare with the CGA to make an informed decision about whether they're worth buying.
Updated 19 March 2024
Summary
- Extended warranties are routinely offered with any new or used car. They sound enticing and offer 'protection' should something unfortunate happen to the car later on.
- While these might seem like valuable additions, it's important to understand their value in light of existing consumer rights.
- Trade, consumer, citizens' advice, social media and government authorities remind us of consumer rights under the Consumers Guarantee Act (CGA) instead of opting for an extended warranty. Still, many New Zealanders know it may be a fight to fix a car under the CGA and that buying an extended warranty removes this risk.
- However, the terms and coverage offered by each extended warranty vary, making comparing complicated. Also, the costs to buy the warranty can be significant.
What do I need to know about the CGA? Does it overlap with extended warranties?
- The CGA in New Zealand provides a robust safety net for consumers. It obliges manufacturers and retailers (such as car dealerships) to guarantee that their products (e.g. vehicles) are of acceptable quality and fit for purpose. This means that even after the expiration of the manufacturer's warranty (if you bought a new car), you're still protected under the CGA for products that don't meet these standards.
- Extended warranties are always optional and an additional cost you pay upfront when buying a car. They may offer certain protections beyond what the CGA covers, such as accidental damage or extended service terms. However, in many cases, these warranties don't provide more protection than what's already covered by the CGA or your car insurance - to be sure, you'll need to read the warranty documents in detail.
- Good car dealers will offer a comparison of the protections the CGA offers and the extended warranty's benefits. This includes all terms and conditions, the duration of the warranty, and whether it expires upon making a claim. If you ask for this and don't get a straightforward answer, you'll need to read the warranty documents in detail.
- If the warranty offers something substantially more than the CGA, like replacement with a new item rather than repairs, or if you're purchasing for business use (where the CGA doesn't apply), an extended warranty may be worthwhile.
Know This First: We suggest exercising caution around buying an extended warranty. They can offer peace of mind but are not always necessary and may overlap with protections you already have. Before agreeing to any additional coverage:
- Carefully review what's included.
- Consider how it compares to your rights under the CGA.
- Assess whether it truly adds value to your purchase.
To help you make an informed decision, our guide covers:
- Understanding the Types of Car Warranties - Manufacturer vs Extended vs Dealership vs MBI
- Understanding Coverage and Benefits of Extended Warranties
- When to Consider Buying an Extended Warranty
- Frequency Asked Questions - Dealer Warranties, Extended Warranties, and Consumer Guarantees Act (CGA) in New Zealand
Understanding the Types of Car Warranties - Manufacturer vs Extended vs Dealership vs MBI
1. Manufacturer Warranty: This is also known as a factory warranty and is a promise from the car manufacturer to repair or replace any defects in the vehicle within a specified period. This warranty is included in the purchase price of a new car and covers most mechanical and electrical components of the vehicle, including the engine, transmission, and other essential parts.
The duration of a manufacturer warranty varies but is often set at three years or 100,000 kilometres, whichever comes first.
Certain conditions must be met to maintain the warranty's validity. This often includes regular service at authorised service centres and using genuine parts for repairs.
The length of terms of manufacturer warranties vary, such as Mitsubishi (up to 10 years), Toyota (including used cars), Honda (up to 5 years), Nissan (5 years), Ford (between 3 and 5 years), Hyundai (3 years), Suzuki (5 years), Subaru (3 years), Mazda (5 years) and Volkswagen (5 years).
2. Extended Warranties: These are optional warranties offered by the manufacturer or a third-party provider that begin after the manufacturer's warranty expires. The coverage may resemble the manufacturer's warranty but often varies in duration and specifics.
As the name suggests, extended warranties extend the warranty period beyond the original manufacturer warranty and, in most cases, come at an additional cost.
3. Dealership Warranties: Car dealerships offer these, and they may apply to new or used vehicles. The coverage varies significantly and won't usually be as comprehensive as the manufacturer's warranty. Instead, it may only cover specific parts or types of repair. The dealership provides such warranties, not the manufacturer, and they are sometimes used as an incentive for used car sales to protect the buyer.
Extended Warranties vs Mechanical Breakdown Insurance (MBI)
Extended warranties and MBI both offer protection beyond the standard manufacturer warranty, but they have key differences:
- Extended Warranties are more like a continuation of the manufacturer's warranty, covering repairs for certain parts and systems in the vehicle with repairs undertaken through authorised dealerships or service centres.
- Mechanical Breakdown Insurance (MBI) is a type of insurance policy rather than a warranty. It covers the cost of repairs for mechanical breakdowns not covered under the standard warranty or pays out when there's no warranty. MBI can offer more comprehensive coverage, including parts and services not covered under traditional warranties. Our guide to MBI policies has more information.
Know This: Extended warranties and MBI both extend coverage beyond the standard manufacturer's warranty, but they differ in their nature, cost, and repair claim process. Usually, they overlap, so buying both is a waste of money, as you're overpaying for the same protection.
Car Loan Expert Founder Christopher Walsh shares his views on extended warranties and why they don't always protect your investment:
"Cars are expensive to operate and an ongoing drain on the finances of many New Zealand households. One critical aspect often unacknowledged is the financial strain that can arise from unexpected car breakdowns. Things quickly become messy and stressful when they're not covered under an extended warranty (or an MBI policy).
My view is simple - extended warranties are not a one-size-fits-all solution. They are often perceived as a safety net, offering peace of mind to car owners wary of future repair costs. However, they have limits and aren't comprehensive shields against all types of breakdowns or issues.
Before buying any warranty, you must know exactly what an extended warranty covers. Many car owners mistakenly believe that their warranty covers any malfunction or defect, only to find that certain breakdowns or parts are excluded.
The fallout from a broken down car with finance owing is significant when the warranty does not cover the repairs. This situation is a major reason some car owners default on their vehicles, as they cannot afford the repair costs and their regular car payments.
Compounding the issue are dealerships that refuse to cover repairs under warranty, citing various exclusions or conditions. Because cars are complicated, car owners are left in a difficult position of fighting back or paying to fix the car. Neither option is pleasant.
Finally, there is a potential overlap between mechanical breakdown insurance (MBI) and extended warranties, which offer similar types of coverage.
Before deciding which one to buy (if any), you'll need to understand the specific conditions, exclusions, and coverage limits of each can prevent unnecessary expenditures and ensure more effective financial planning".
Understanding Coverage and Benefits of Extended Warranties
Extended warranties generally cover a range of issues for a specified time. Common inclusions are:
- General Repairs: Covering repairs needed due to manufacturing defects or mechanical failures.
- Faults or Defects: Addressing specific parts that may fail due to manufacturing issues.
- Vehicle Systems: Protection for major systems such as the electrical system, engine components, and transmission.
However, extended warranties exclude many events and conditions, including wear and tear, accident damage, regular maintenance (such as oil changes, brake pad replacements, new tyres, etc), servicing, and making any aftermarket modifications can void the warranty.
Extended Warranties vs the Consumer Guarantees Act (CGA) - What You Need to Know
The CGA offers protections that sometimes extend beyond what is covered by a warranty. This is particularly relevant for used cars where the dealer warranty might offer limited coverage over a three or six-month warranty term.
By law, even if certain defects are not covered under a warranty, consumers have rights under the CGA for goods to be of "acceptable quality and fit for purpose".
Extended warranties can offer a more straightforward repair process, which some might find more appealing than relying on the CGA and, in many cases, a fight with the dealer to get things fixed. However, extended warranties have significant coverage limits, potentially making them less beneficial than the CGA.
The table below compares the options:
| Coverage Aspect | Manufacturer Warranty | Extended Warranty | Consumer Guarantees Act (CGA) |
|---|---|---|---|
| Duration | Varies (usually 3 years/100,000km, but can be higher) | Varies (starts after manufacturer warranty) | Duration is not fixed ("reasonable" life expectancy of product) |
| What's Covered? | Defects in material and workmanship | Similar to manufacturer, may include additional items | The vehicle must be of acceptable quality and fit for purpose |
| Cost | Included in vehicle price | Additional cost | No additional cost (your legal right) |
| Service Requirements | Regular servicing often required at authorised centres | May require servicing at specified locations | No specific service requirements |
| Transferability | Varies by manufacturer | Varies by provider | Applies to the product, regardless of owner |
| Limitations & Exclusions | Wear and tear, accidental damage, misuse | Varies by provider; similar to manufacturer | Does not cover misuse, accidental or intentional damage |
Real-Life Examples: Navigating CGA Rights vs Extended Warranties
1. New Car Purchase:
- John buys a new car with a standard 3-year manufacturer warranty. Six months after purchase, he faces an electrical issue with the vehicle.
- The manufacturer's warranty covers the repair, but John wonders if he should also buy an extended warranty.
- He learns that the CGA's rights might provide sufficient coverage for quality and durability concerns, making the extended warranty less crucial.
2. Used Car with a Dealer Warranty:
- Sarah purchases a used Toyota from a dealership with a 6-month dealer warranty. After seven months, the transmission fails. Initially worried, she asserts her rights under the CGA.
- Despite being past the dealer warranty period, the CGA covers the issue, as it's reasonable to expect the transmission to last longer.
3. Deciding on an Extended Warranty:
- Alex considers an extended warranty for a high-mileage used Honda. The car is known for its reliability, but its age makes Alex cautious.
- Alex weighs the cost of the extended warranty against the likelihood of significant repairs and the existing CGA coverage.
- He decides against the extended warranty, feeling confident in the car's history and the CGA's protection.
4. Making a Claim on Mechanical Breakdown Insurance (MBI):
- Emma's car, still under a dealership warranty, experiences engine trouble.
- The dealer insists she claims on her MBI policy, but she challenges this, highlighting her rights under the CGA for a reasonable quality standard.
- The dealer acknowledges this and agrees to cover the repair costs without involving the MBI policy.
When to Consider Buying an Extended Warranty
Several factors can influence the decision to opt for an extended warranty, and we suggest carefully making the following considerations:
- Dealer Reputation: Confidence in the dealer's reliability is crucial, especially in the second-hand car market. What are their reviews like? Do they have complaints about not solving mechanical issues, and do you believe they will help you if you run into a problem?
- Duration of Original Warranty: An extended warranty might make more sense if the original warranty is short.
- Consumer Guarantees Act (CGA): You have protection, so it's important to understand how this Act works alongside an extended warranty. Our summary above explains your rights in detail, and this government guide has further information.
- Convenience: Extended warranties can offer a more straightforward repair process, which some might find more appealing than relying on the CGA.
- Limitations: It's crucial to be aware that some extended warranties have significant limits on coverage, potentially making them less beneficial than the CGA.
- Coverage Details: Understanding exactly what is covered and what is not is vital. This includes looking into exclusions, shipping costs, and the process for genuine repairs.
- Contractual Conditions: Be aware of the warranty's impact if the car is stolen or sold. Ideally, the warranty should offer enough flexibility to adapt to these changes.
Know This: Guidance from the government's Ministry of Business (MBIE) suggests that "buying an extended warranty or breakdown insurance is usually not worth it". They argue that you're covered by the CGA (when you buy a car from a dealer) and that the vehicle has to be of "acceptable quality and last a reasonable amount of time". Their advice is simple - "If there is a problem with the vehicle you didn't cause, you have a right to seek a remedy from the dealer under the CGA - even if you didn't buy an extended warranty".
Frequency Asked Questions - Dealer Warranties, Extended Warranties, and Consumer Guarantees Act (CGA) in New Zealand
What do dealership warranties typically cover for used cars?
Dealership warranties often cover specific mechanical and electrical issues for a set period, but this can vary. For example, a warranty might cover engine or transmission issues for six months. Always request detailed terms to understand what's included and what's not.
How does the Consumer Guarantees Act protect car buyers?
The CGA ensures vehicles are of acceptable quality, fit for purpose, and as described. For instance, if you buy a car advertised as 'in excellent running condition' and the engine fails within a few months, the CGA could cover you. Coverage depends on factors like the car's age and price.
Are extended warranties worth considering for used car purchases?
Consider a scenario where you're buying an older car with high mileage. An extended warranty could be beneficial if it covers significant repairs that are likely given the car's age. Compare this against what's already protected under the CGA and your car insurance.
Can dealers impose time limits on CGA rights or make extended warranties mandatory for repairs?
No, dealers can't restrict CGA rights or force you to use an extended warranty. For example, if a dealer insists that CGA rights expire after a year or that you must use an extended warranty for repairs, they are misinforming you. The CGA covers issues within a 'reasonable' period.
Know This: Buying an extended warranty doesn't affect your rights under the CGA. For example, even if you have an extended warranty, you can still claim under the CGA if the car fails to be of acceptable quality within a reasonable time after purchase.
What if the dealer wants me to claim on MBI instead of fixing the car?
If a dealer directs you to claim on an MBI policy for a fault that should be covered under the CGA or their warranty, this could be an attempt to avoid their obligations. For instance, if your car's transmission fails unexpectedly and the dealer insists on an MBI claim, they might be shying away from their responsibility to provide a remedy under the CGA.
What issues are typically covered under mechanical and extended warranties?
These warranties often cover major issues like a gearbox failure but may not cover routine wear and tear like brake pads. Check all details, including any excess fees and the process for claims. A scenario could involve a warranty covering an expensive electrical fault but not routine maintenance costs.
How can I assess the need for an extended warranty?
Research the car's history and known issues. For example, an extended warranty might be a good investment if a specific model is known for costly transmission problems. Consider the cost of potential repairs against the price and coverage of the warranty.
What are my options if a used car purchased from a dealer has major issues?
If a car you purchased has major faults, start by requesting a repair or replacement from the dealer under the CGA. If they refuse, consider legal advice or the Motor Vehicle Disputes Tribunal. An example scenario could be discovering a major engine fault that the dealer refuses to address soon after purchase.