When you are considering purchasing a used car, you have a choice: You can either buy a certified pre-owned car with factory warranty coverage, or get a car that’s not certified and buy an extended warranty. Each approach has strengths and weaknesses. Which approach works best for you depends upon the vehicle you want to buy, how long you plan to keep it, and your budget.
What Is a Certified Used Car?
A certified pre-owned vehicle (CPO car) undergoes a comprehensive multi-point inspection by the original manufacturer to ensure that the car is in excellent condition. Cars considered for certification are gently used car and have relatively low miles, no history of major accidents, and a clean title history. Typically they are just a few years old and, after certification, are sold with warranty extensions past the vehicle’s original limited warranty.
In addition to extra warranty coverage, CPO cars typically include 24-hour roadside assistance, dealer loaner cars, trip interruption coverage, and more. The extended warranty and other benefits you receive vary by manufacturer. Some require a deductible for each covered repair, while others don’t.
Note that we are talking about factory CPO cars here, not vehicles that merely have “certified” stickers slapped on their windows by the dealer. True CPO vehicles have to meet specifications outlined by their original manufacturers to receive certified status. You can only find factory-certified cars at their brand’s franchised new car dealers. If you see a certified Mercedes-Benz at a Honda dealership, for example, it’s not a factory-certified pre-owned car.
Sometimes a dealer will offer to “certify” a car after you agree to purchase it. That’s not how factory certification programs work – it’s likely a tactic the dealer is using to sell you an extended warranty.
Many certified pre-owned models are lease returns, which are naturally in good shape and have low mileage due to the terms of their leases. Some have time or miles left in their original warranty, plus manufacturer-backed additional warranty coverages. Other CPO cars are those used by dealership or manufacturer personnel, while some are just lightly used trade-ins that pass the multipoint inspection process.
What Is an Extended Warranty?
An extended warranty is an add-on product that can be sold with nearly any used car. No inspection or certification process is required before you can buy an extended warranty, and you can purchase one at the dealership when you buy the car, or at a later date from the warranty company itself, a financial institution, or your car insurance company.
Extended warranties – which also go by other names, such as vehicle service contracts – are like buying an insurance policy to protect your wallet from the cost of unexpected repair bills. In some states, the sale and performance of extended warranties are regulated by state insurance commissioners. Some extended warranty products are available from the automaker who built the car, though many come from third-party companies. Some just included extra coverage for the vehicle, while others feature roadside assistance and other extras.
Coverage from an extended warranty or service contract can vary greatly. Some require a deductible for covered repairs, while others don't. There are inclusionary contracts, which only cover a set list of vehicle components, and exclusionary contracts, which cover all parts, except for those specifically listed. Exclusionary contracts for used cars are typically more expensive than inclusionary service contracts because they cover more of the vehicle's potential problems.
If you are considering a pre-owned vehicle with very few miles on the odometer, it may still be covered by its original limited warranty. Many original factory warranties are transferable to second owners, so you should look at what coverage the car may still have before spending extra on additional protection.
Pros and Cons of Certified Used Cars
Pro: They’re Backed by the Automaker
Factory CPO vehicles are backed by the manufacturer who built the car, not the dealer or a third-party warranty company. You can get coverage under the CPO warranty at any of the brand’s franchised new car dealers, so you’ll have a place to go even if you’re on a road trip.
Pro: They’re Inspected
Every automaker has a comprehensive vehicle inspection program that their used cars have to go through before they are called a CPO car. In many cases, the vehicles will be thoroughly reconditioned along the way, according to the specifications in the dealer’s checklist. While many carmakers talk about how many points they cover, the specific number really isn’t important, as long as all of the vehicle’s major components are checked.
Pro: They Come With Extras
Most certified pre-owned cars come with extra benefits, such as roadside assistance, travel interruption insurance, travel concierge service, and dealer loaner cars for when your vehicle is being serviced. A few programs include periodic maintenance, such as brake pads and oil changes, though that is not common.
Pro: CPO Warranties Are Usually Comprehensive
Most certified pre-owned warranties mirror the vehicle's original bumper-to-bumper and powertrain coverage, so you can be assured that all of the vehicle's major components are included. Of course, you should read the CPO paperwork carefully to spot any exceptions. Because the coverage is factory-backed, you can usually count on the repairs being performed with original equipment parts, plus automaker-specified diagnostics and repair procedures.
Con: CPO Cars Are More Expensive
Buying a pre-owned car that is certified is more expensive than buying a non-CPO vehicle. The cost of the additional warranty and other extras is built into the price of the used car, though you should always attempt to negotiate the price you pay.
Con: The Length of Coverage Is Limited
The coverage offered by a CPO program is limited to specific terms that are outlined by the automaker. When buying a service contract, on the other hand, you can usually specify different lengths and levels of coverage for different prices.
If you purchase a used car with 50,000 miles on it, for example, you can choose from plans that might give you 20,000 more miles or 50,000, taking you all the way up to 100,000 miles. You can choose to include roadside assistance or decline it if you already have coverage from an auto club or your car insurance company.
Con: You Can Only Receive Service at the Dealership
With some CPO programs, you have to go to the automaker’s franchised new car dealerships to get service. While that can also be a benefit, it can be a problem if you’re in a rural area and the nearest dealership is a long way away. Also, if you have an issue with the service you receive, your options are limited.
Pros and Cons of Extended Warranties
Pro: You Can Get One for Any Used Car
One of the greatest benefits of an extended warranty is you can add it to almost any used car you buy, regardless of condition, age, or miles. You may have to pay extra based on those factors, but you can almost always find a company that can provide you with an extended service contract.
Pro: A Non-CPO Car Is Less Expensive
It costs dealers and automakers money to inspect, recondition, and warranty CPO vehicles, and those costs are built-in to the price of the pre-owned car. Cars that are non-CPO don't have those costs, so you can buy them for less and add an extended warranty when your budget allows.
Pro: Even Private-Party Used Cars Can Have One
Cars that are qualified by a certified program are only available at that brand’s franchised new car dealers. However, even if you buy a pre-owned vehicle from a private seller, you can get a service contract. Of course, you'll still want to get a thorough pre-purchase inspection before you buy to save you the hassle and deductibles you would have to pay if the car you buy has issues.
Pro: You’re Not Limited to a Dealer
Most third-party service contracts will allow you to take your covered vehicle to independent shops, not just franchised new car dealerships, if the vehicle requires covered repairs. CPO cars can typically only receive covered service at the brand’s network of dealerships.
Con: Extended Warranties Can Be Expensive
Depending on the warranty you buy and where you buy, it can be more expensive than the price difference between getting a non-CPO and a CPO vehicle.
Dealerships can have huge markups on extended warranties, so you should negotiate for the best price you can get. You should also shop at your lender and car insurance company to see if you can get a better deal. Don’t fall for the pressure to buy one at the same time as you buy the car, and never finance an extended warranty (you’ll have to pay interest on the purchase for years).
Con: They’re Not All Back by the Automaker
Many of the service contracts available from dealerships are from third-party companies. You’ll need to do your due diligence to ensure that the company does not have serious consumer complaints. Check with your state’s Attorney General’s office or your local Better Business Bureau. Be sure to use the specific corporate name of the company you’re considering, as many have similar names. Extended warranty companies can (and have) gone out of business. If you have a choice, an extended warranty from an automaker is a safer choice, as they’re more likely to stay in business.
Con: The Coverage Varies Greatly
If you are considering purchasing a warranty for a car that is pre-owned, you’ll need to do your research to ensure that you are getting the coverage you expect. Buyers need to read the contracts themselves, not the glossy sales brochures, so they understand what truly is and is not covered.
Today’s used and new cars are loaded with technology, so you’ll want to buy coverage that is more than just a powertrain warranty. You’ll want it to cover the car’s infotainment system and any advanced safety and driver assistance hardware.
On the flip side, keep in mind that you only need a contract that covers the equipment on the car. If you don’t have a navigation system, for example, you don’t want to pay extra for a policy that covers one.
Con: They’re Loaded With Fine Print
Most extended warranties and service contracts are loaded with fine print about what is covered, what deductibles are required, where it is covered, whether you need pre-approval before you get repairs completed, and how reimbursement for covered repairs is taken care of. It can be a nasty surprise to find out that you have to wait weeks for a company to approve your repairs and send you a check as reimbursement for the money you have already had to put out. The best programs will directly reimburse the shop for any repairs they have performed.
Before You Buy Either a CPO Car or Extended Warranty
While you may be all ready to buy a certified used vehicle or an extended service contract, there are a couple of things you need to do before you open your wallet. With any pre-owned vehicle – certified or non-certified – you need to get a comprehensive vehicle history report from a company such as Carfax or AutoCheck. While many of the negatives you might find in a history report would prevent a car from becoming factory certified, checking the report for yourself is good car-buying advice.
The easiest problem to solve is one that doesn’t happen in the first place, so looking at the predicted reliability ratings and ownership costs in our used car rankings and reviews can help you find a vehicle that doesn’t break down and require coverage.
More Shopping Tools From U.S. News & World Report
Whichever route you choose, U.S. News Best Cars is a great starting point. Our used car rankings and reviews will guide you to a car, truck, SUV, crossover, or minivan that meets both your needs and your budget. Our used car deals page will help you find pre-owned vehicle financing offers that can save you serious money in interest costs over the life of your car loan.
Knowing how the used car buying process works can give you the knowledge and confidence to strike the best deal possible. Our Guide to Buying a Used Car will walk you through the steps to follow when purchasing a pre-owned vehicle. Following the advice in our articles about negotiating a car price and deciding whether to buy a new car or used car will help you get the right car at the right price.
Smart buyers always have a pre-approved financing plan in place before they head to the dealer. U.S. News partner MyAutoLoan.com can get you up to four offers with one simple online application.