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Certified pre-owned vs used cars with warranty, which is better

Certified pre-owned vs used cars with warranty, which is better?

When you’re looking to buy a used car, there are three major categories that you can choose from:

  1. Regular used cars
  2. Used cars with warranties
  3. Certified Pre-Owned cars

Each category comes with its own set of pluses and minuses, and even though Certified vehicles might be the best choice for most used car buyers, they aren’t a perfect fit for everyone. Let’s examine each of the three options so you can decide which suits your needs best.

Certified pre-owned cars Vs. used cars with warranties

Regular used cars don’t need much of an explanation – they’re normal second-hand vehicles often sold by private sellers, and sometimes by dealerships that come as they are, without a manufacturer- or dealer-backed warranty.

As for the other two options on the list, most people think that Certified Pre-Owned cars are the same thing as used cars that come with a warranty because dealerships everywhere are trying their best to confuse you. But there are some major differences between CPOs and used cars, even if the latter come with a warranty.

First of all, it’s all about who backs the warranty.

Certified Pre-Owned vehicles get a factory-backed warranty that is valid all across the US, in any of the manufacturer’s official dealerships. Used cars that come with dealership or third-party warranties are often referred to as “certified” by sellers to make it seem as though they are just as good as the real thing. In reality, their warranty is backed by either a small dealership, a chain of dealerships, or a third-party entity. Either way, it’s often worth far less than a factory-backed one, as you’ll be confined to the dealership that sells you the car for future repairs that are covered by the warranty. And the differences don’t stop here. Let’s take a look at what it takes to be awarded the “Certified Pre-Owned” badge by a manufacturer.

How do used cars get certified?

When we talk about factory-backed certification, the first thing to note is that a brand can only certify its own models – Ford will certify Ford cars, Toyota will only certify Toyotas, etc. And that is important because it means that factory-backed certification is given by experts who have a lot of experience with the car models they’re certifying. 

Every manufacturer has specific age and mileage requirements for a used car to be considered for certification. These requirements are there to make sure that factory-certified cars are relatively new vehicles and that they haven’t been driven for many miles. Here are a few examples:

  • Chevrolet Certified Pre-Owned eligibility: 6 years old no more than 75,000 miles
  • Hyundai Certified Pre-Owned eligibility: 5 years old or less, no more than 60,000 miles
  • Mercedes Certified Pre-Owned eligibility: 6 years old, no more than 75,000 miles
  • Subaru Certified Pre-Owned eligibility: 7 years old, no more than 100,000 miles
  • Toyota Certified Pre-Owned eligibility: 6 years old, no more than 85,000 miles

If a vehicle meets the eligibility criteria for certification, it then passes through an inspection and reconditioning process. It’s worth mentioning that this is also done in official dealerships by manufacturer-vetted mechanics who know the models inside out and who follow the brand’s best practices when it comes to repairing them. The inspection process sees the mechanics check the car’s engine, transmission, battery, and tires, plus a sleuth of other minor details.

Used cars that come with a warranty tend to have few, if any, eligibility restrictions to begin with. This means that you’re not guaranteed to get a relatively new car like in the case of factory certification. Plus, their inspection process tends to be far shorter and is done by generalist mechanics who might not have experience with the models that they’re certifying. That isn’t necessarily a bad thing in itself, but it does leave the door slightly more open for trouble to sneak in. Since the inspection process behind the “certification” can be defined by the dealer, it’s likely that its quality won’t rival that of a manufacturer-grade inspection and reconditioning process. 

Extended warranty for used cars

Used cars that don’t meet the criteria for factory certification can either be sold as they are or with the dealership’s backing through an extended warranty. But, according to Consumer Reports, you’re better off skipping extended warranties altogether. That is because 55% of car owners that opted to get some sort of warranty extension, never end up using it. And of those that do, most benefit less than what they paid for for the insurance policy. They’re designed that way because the main purpose of an extended warranty for used cars is to help the dealership turn a profit. Car dealers know what the chances of having to cover future repairs are and they stack the odds against you through inflated warranty prices, making extended warranties a rigged game.

At $1,200 on average, extended warranties aren’t a cheap add-on either, taking the price point of a used car with warranties closer to that of a CPO. And in that case, you either do your homework and inspect the car thoroughly so you can skip the extended warranty and get a better total cost of ownership, or you go straight for manufacturer-backed certification.

Certified pre-owned cars benefits

If you’re considering buying a Certified Pre-Owned car, you’ve likely noticed that their price point is slightly above that of all other used cars. Even so, and even accounting for your area and the type of model you’re interested in, a CPO costs just 2-3% more than a regular used car. And these are the unique benefits you get with factory-backed certification for that price hike:

  • Free vehicle history report available – most manufacturers begin their certification process by obtaining a car history report from service providers such as carVertical or Carfax. 
  • CPO vehicles include additional services – most CPO programs come with additional perks such as free roadside assistance, free maintenance checks, or free satellite radio trials.
  • Newer cars – Manufacturers bar older cars from getting Certified by having strict age restrictions in place. CPOs tend to offer modern tech and comforts as a result. 
  • Low mileage – All CPO programs have mileage limits for eligibility, which means that the inner workings of a manufacturer-backed car such as the engine, the electrical bits, the transmission, etc should be reliable for many more miles.
  • Less wear and tear – newer cars with low mileage naturally register less wear and tear, so the inside of your car will look as close to brand-new as possible.
  • Better financing terms – almost all lenders look favorably on financing manufacturer-certified cars. You’ll get offered far better terms than you would for a regular or dealership-certified used car and some brands offer special in-dealership financing for their own CPO models.

Even though CPO programs follow the same principles, they apply them differently. If you’re looking to find the best certified pre-owned car deals, then look out for the ones that provide the most coverage.

Advantages of used cars that come with a dealership-backed warranty

Even though second-hand cars that come with a dealership-backed warranty offer less than a CPO, they still have their benefits when compared to a regular used car or even a brand-new one:

  • Car depreciation is accounted for – all used cars share the great advantage of having already registered the sharp depreciation that comes in the first year of a car’s life. It’s estimated that a car loses 15 to 20% of its value in the first 12 months after coming out the factory’s floor and roughly 10% annually thereafter. A used car that’s 3 to 4 years old is already at least 40% cheaper than its original price. 
  • Warranty coverage – even though a dealership-backed warranty isn’t as reliable and as valuable as a factory-backed one, it’s still better than nothing. Purchasing a used car comes with a certain level of risk and a warranty of any kind helps mitigate some of it. That being said, extended warranties tend to be highly overpriced, so make sure you negotiate their price heavily.
  • Getting a loan might be easier – an extended warranty for used cars will count for something when it comes to financing, even if it’s not as good as a factory-backed one. 

Regular used cars, Certified, or second-hand with an extended warranty, which one is better for you?

In the matchup between certified pre-owned cars Vs used cars with a warranty, which one is a better option for your needs? Or should you go for a plain, no-warranty second-hand vehicle? The best way to answer these questions is to compare the three options side by side.

Pick a regular used car that doesn’t come with a warranty if:

  • You have experience with buying used cars or you’re a professional mechanic
  • You’re looking for an older vehicle within a tight budget
  • You’re willing to take on some risk even if you do all the proper due diligence by having the car inspected by a professional mechanic and obtaining a vehicle history report

Pick a Certified Pre-Owned car that comes with a manufacturer-backed warranty if:

  • You’re looking to get a used car that feels as new as possible
  • You want your car to have the latest technology
  • You value your safety and peace of mind first and foremost

Unfortunately, there are no good reasons to buy a used car that comes with a dealership-backed warranty, unless you can get it for a noticeably better price than that of a CPO. More often than not, dealers slap a “certified” sticker on their used cars and demand CPO-level prices for them but their certification is far less valuable than that issued by manufacturers. A used car that comes with a dealership-backed warranty should cost almost the same as a regular used car. And that almost never happens.

If you factor in the fact that, according to Kelley Blue Book, in 2022 the price of a certified pre-owned car is just 1.8% higher than that of a non-certified pre-owned vehicle, then the smart money is on the CPO. For a price bump of less than 2%, you get a factory-backed warranty plus a newer, less-driven car that also comes with tons of unique benefits that range from better financing to free scheduled maintenance.

In the case of certified pre-owned cars vs used cars with warranties, we think that the former is a clear winner, in most cases. Only if you’re a professional mechanic or you have lots of experience in buying cars is looking at regular used cars a better idea. And what about used cars with warranties? It’s just a fancy way of saying “overpriced used cars”.

FAQ

Is a dealership warranty on a used car worth it?

More no than yes. A dealership warranty is usually far more limited than a factory-backed warranty and comes at a price that more often than not isn’t worth it. Dealerships make a lot of profit by selling overpriced extended warranties.

What is the difference between a CPO and an extended warranty?

There are two main differences between the two – one is the fact that CPO programs usually include some form of bumper-to-bumper coverage whereas extended warranties tend to be more limited. The second is the fact that shoppers trust big car manufacturers more than they do the small companies behind extended warranties for used cars.

Should I buy a CPO car for the first time?

If you’re a first-time used car buyer, the answer is most likely yes. CPOs offer more safety and they come with the peace of mind of knowing that the manufacturer has your back in case the car has problems in the near future.

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