Warranty - Car Warranty

Car Warranty

A new car factory warranty extends from a minimal 1 year, more common 3 year and extended 5 years. Some car manufacturer warranties have gone as far as 10 years. Crate Engine manufacturers also give warranties based on the manufacturers' and workmanship warranties.

Some companies also offer extended warranties or used car warranties for vehicles up to 12 years old. The term extended warranty. Non-manufacturer based warranties are technically called motor vehicle service agreements or service contracts.

In the UK, car warranties come in three forms:

1. Original manufacturer warranty

2. Insurance warranty (extending new car warranties or starting a separate used car warranty)

3. Obligor warranty / guarantee (also extending new car warranties or starting a separate used car warranty)

An Insurance Warranty is underwritten by an insurance company and is an agreement that the insurance company will indemnify the policyholder against loss caused by a covered part.

An Obligor Warranty or Guarantee is a contractual warranty between the seller (usually a garage) and their customers.

While both are called a warranty and sold or given away in the same way, there are big differences.

The Financial Services Authority (FSA) regulate warranties when they are insurance, and it is illegal to sell insurane without being regualted by them, but they say the 'Obligor' kind of warranty is legal and not regulated by them:

"Some firms, such as car dealerships, offer their own warranties to cover repairs or mechanical faults as part of the sale of the goods. This includes car dealers who offer additional warranties to extend manufacturers’ guarantees on new cars, or mechanical guarantees on used vehicles. We have concluded that contracts of this kind are unlikely to be insurance. This is because the warranty is a consequence of the contract of sale, under which the substance of the provider’s obligation is the sale of goods that meet the required (often statutory) quality standard, not the provision of insurance. In this situation, the warranty does not involve a transfer of risk, but a recognition (and crystallisation) of an existing responsibility."

If you buy an insurance warranty, then it will be regulated by the FSA, which means that if you are not happy you can complain to the Financial Ombudsman and if the insurer cannot pay out you will be covered by the Financial Services Compensation Scheme.

So if you are buying a long-term warranty (several years) then an insurance warranty makes sense. If you are buying a short-term warranty, or given a 3-6 month warranty to cover the period just after you buy a new car, then the Obligor Warranty or Dealer Guarantee will offer sufficient protection.