Certified pre-owned vehicles vs. extended service contracts

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

Certified pre-owned programs vs. extended service contracts

There are two primary ways for used vehicle dealers to provide their customers with peace of mind. The first is through a certified pre-owned (CPO) vehicle program backed by the vehicle 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 vehicle requires repairs shortly after purchase. However, there are differences between the two approaches.

For a used vehicle to meet CPO vehicle requirements set by the original equipment manufacturer (OEM), it must pass a thorough inspection and meet specific reconditioning requirements that are designed to make the vehicle as close to new as possible.

Furthermore, these CPO vehicles typically offer an extension to the vehicle’s original warranty, which facilitates any necessary repairs that could arise, very often without having to pay any kind of deductible. A CPO vehicle may even qualify for new vehicle financing rates, which are generally lower than interest rates for used vehicle loans.

For an extended service contract or extended warranty, a used vehicle buyer pays extra for the protection, which is usually provided by an independent third party. Pre-owned vehicles sold with extended service contracts or extended warranties are not required to pass a stringent vehicle inspection and meet vehicle reconditioning requirements, are not required to be in good condition with low mileage, and may not have clean title histories. Check carefully to ensure that the service contract provider has a good reputation and is on solid ground, financially.

Moreover, extended service contracts or extended warranties usually require the vehicle owner to pay a deductible for each component that is repaired or for each repair visit; they may also require that the vehicle owner pay the entire vehicle repair bill up front, and submit a claim for reimbursement.

When buying a used vehicle and trying to decide between a certified pre-owned vehicle backed by an auto manufacturer and a used vehicle with an extended warranty or service contract, it is important to remember that any used vehicle can be sold with the latter, while only certain vehicles (depending on each manufacturer’s standards) are able to meet CPO standards.

Beyond the issue of vehicle condition, however, CPO programs are also typically easier to use, since they work like the vehicle’s original warranty, whereas extended service contracts and extended warranties generally require more of an investment by the used vehicle buyer.