Dealer add-ons: When they’re worth it and when to say no

Dealer add-ons often convince buyers to spend more than intended. And you’ll pay interest on any add-ons included in your auto loan.

Keep in mind that while you may be presented with many choices of packages, you can decline them all. You also can negotiate these car services individually if you want just one. And later, you can cancel any services if you don’t want them.

1. Gap insurance

Gap insurance pays the difference between what you owe and your car is worth. If your car is totaled or stolen, gap insurance can help you break even on costs.

It is a smart buy if you are leasing a car — if it’s not already included in the lease agreement.

Gap insurance might also be worth the cost if you get a car loan for more than the car is worth, which can happen when the remainder of your previous car loan is rolled into the new car payment.

Still, it’s best to research the cost of gap insurance through other sources first to know if the dealership is offering you the best price.

• Is gap insurance worth it?

  Purchasing gap insurance is worth it if your new vehicle will likely depreciate at a fast rate. Having it will protect you from having to pay the difference between your vehicle’s worth and what you owe if the vehicle is declared a total loss.
  
  
  But you should compare gap insurance before you buy it. Banks, credit unions and third-party sellers all offer gap insurance. You never need to purchase gap insurance from a dealer, and if you find a better deal elsewhere, you’ll have the protection without dealer markup.

2. VIN etching

VIN etching involves engraving your vehicle identification number onto your vehicle’s windows and windshield. It makes your vehicle easily identifiable and thus less valuable to thieves and potentially easier to recover if stolen.

Although insurance companies sometimes offer discounts for drivers with this add-on, you can do it yourself and save some money.

• Is VIN etching worth it?

  This add-on is not worth it. You can get this done at a detail shop later or DIY it using an online kit for as cheaply as $20.

3. Extended warranties

Extended warranties kick in after the manufacturer’s warranty expires but typically cover less. They are often more expensive than the most common repairs, especially when combined with your auto loan.

Service plans are usually lumped in with extended warranties and involve purchasing scheduled maintenance checks. The price of a service plan is typically rolled into your monthly car payment.

• Are extended warranties worth it?

  Extended warranties are only beneficial if you expect to own the car well past the manufacturer’s warranty — and even then, it’s not always the right choice.
  
  
  Check Kelley Blue Book and Edmunds for expected repair costs and compare them to the extended warranty offered by the dealer. If you could reasonably save for repairs while you own the vehicle, an extended warranty will be an unnecessary expense.
  
  
  A service plan is only useful if you plan to use the dealer for maintenance and are fine with maintenance potentially being done on a less frequent basis than the manufacturer recommends.
  
  
  If you purchase either of these options, take the time to research these service costs from other sources. You can and should shop around to find the best price, and you are never required to accept a dealer’s extended warranty to buy a car.

4. Tire and wheel protection

Tires can be very expensive. Dealers offer tire and wheel protection to cover the cost of replacing the tires and rims if potholes, nails or curbs damage them. But most tires carry their own warranty. If issues arise, you will likely still be able to afford replacements without tire and wheel protection.

• Is tire and wheel protection worth it?

  This add-on depends on your driving experience. Extra protection could be beneficial if you live in an area with notoriously rough roads. You will likely find cheaper options for the same coverage outside the dealership.

5. Paint and fabric protection

This add-on is exactly what it sounds like: an extra coating that dealers can add to your vehicle’s interior and exterior to protect it from damage. Some manufacturers include this with new car models, so check before double-dipping on this add-on.

• Is paint and fabric protection worth it?

  Paint and fabric protection are generally not worthwhile add-ons.
  
  
  Although keeping your new car in prime condition is important, you can get the same results with a trip to your local hardware store. Consider saving money and doing this yourself.

6. Key protection

Depending on your car’s key and fob types, replacing either or both can get pricey. However, the additional cost of key protection may be more expensive than replacing the key on your own.

If you opt for key protection, you can compare the dealer add-on to options your insurance offers. You also can invest in technology like Tile to help you find your key if misplaced.

• Is key protection worth it?

  This add-on is not worth the extra money. You can easily replace your key if it is lost. Do not be swayed by dealers who are focused on the advanced technology that keys now offer.

7. Credit insurance

This add-on helps you make payments on your auto loan if you cannot. It only activates in certain situations — like death, disability or unemployment. You aren’t required to buy credit insurance to finance or purchase a car, so don’t let salespeople pressure you.

• Is credit insurance worth it?

  Credit insurance can seem useful in an emergency, but it may be more expensive than building an emergency fund. Also, you may be able to find credit insurance through a third party at a lower rate. In some cases, the insurance you already have may be enough to cover your expenses without additional cost.

Remember: You can say no

Dealers often offer add-ons as a package rather than stand-alone items. This strategy — designed to sell more items — is often presented as a “protection package.” It’s usually offered in levels like bronze, silver and gold.

Known as “menu selling,” this approach makes it easier for the dealership to ensure the salesperson presents all the extra items or services the dealership offers. The strategy may make the customer feel as if these packages are not optional, even if they are.

Remember that any add-on you decide to add to your loan will cost interest. Keeping the added cost in mind may help you stay firm when negotiating your car purchase.

My auto financing added extras I don’t want — can I have them taken off?

Since each add-on service listed above is optional, you should be able to cancel them under most circumstances.

1. Check the contracts you signed. Review the time limits and cancellation procedures. You may have to mail or fax documentation to receive a refund or rebate.
2. Skip the dealership if you can. Instead, go directly to the service company and cancel with them directly. This is the best route if it’s been more than a few days since you bought your car.
3. Keep notes and documents on the process. Canceling add-ons can be complicated and annoying, so write everything down as you complete each step.
4. Stay on top of the money. It may take weeks for your refund or rebate check to come in. If it doesn’t, follow up and ask when to expect the contract to be canceled and refunded.

If you financed any add-ons through your loan, you might not be able to receive a refund on the interest you already paid. However, you can take the add-on off your loan and get a rebate on the amount you haven’t yet paid.

The bottom line

Vehicle purchases come with a laundry list of additional costs, adding up to a higher number than advertised on the vehicle window. But a savvy buyer can avoid many extra charges by refusing pricey, optional add-ons. Only purchase add-ons that are worth your while, and don’t spend more than you intend.