Buying a used car? You need an extended auto warranty to protect you from expensive surprises down the road. But be careful when your dealer tries to sell you used auto extended warranty coverage. Usually, the dealer is simply reselling used auto warranties issued by a used auto warranty company, with a markup of up to $1000. You could just as easily have bought the extended warranty directly from the auto warranty company.

But overpaying for a third-party used car extended auto warranty is certainly not the worst used auto warranty deal you can get. The worst auto extended warranty deal is to buy one that isn't issued by a third party at all.

Dealer-Issued Extended Auto Warranties Explained

Yes, some dealers actually sell extended auto warranties they've created themselves. These dealer-issued auto warranties typically only allow you to get service at the dealership. They either don't cover repairs done anywhere else at all, or they only cover emergency repairs for breakdowns.

Often, a dealer-issued used auto extended warranty even restricts you to getting maintenance at the dealership only. With a captive clientele, the dealerships often charge much more than local mechanics.

There are some other big problems with a dealer-issued used auto extended warranty:

• What happens if you move far away? Answer: you'd have to buy another auto warranty.

• What if you're driving somewhere far away when your car breaks down? Answer: if the used auto warranty doesn't cover reimbursements for emergency service, you're in trouble. Even if it does cover reimbursements, you'd better hope your credit card or checking account can handle the damage in the meantime.

• What if the dealership goes bankrupt? Answer: get in line behind the banks, the car manufacturer, the dealership's vendors, and everyone else trying to get money out of the business.

• What if you just aren't satisfied with the dealer's work? Answer: complain very, very nicely. You can't take your business elsewhere unless you're willing to pay for it.

If you comparison shopped the dealer-issued extended auto warranty, you'd realize it wasn't worth it. But most people never do a used auto extended warranties comparison. There is simply so much ignorance about auto warranties. Your best hope is to learn more.

Dealer-Issued Used Auto Warranties: Why Does Anyone Buy Them?

• Most often, the buyer simply never thought about an extended auto warranty before going to the dealership. When the salesperson explains how important extended auto warranty coverage is, the buyer just thanks him for the tip and buys it.

• The buyer doesn't realize how expensive the warranty is. Of course, car repairs can potentially be so expensive that even an overpriced dealer-issued warranty can pay for itself several times over. Meanwhile, next to a $15,000 car, even an overpriced $2500 dealer-issued warranty seems cheap. But if you're going to buy a warranty, why not buy a really good one?

• Many buyers mistake dealer-issued warranties for manufacturers' warranties. In some cases, the salesperson may even try to let you think the warranty will cover repairs at any of the dealerships affiliated with that manufacturer (say, any Chrysler or Mitsubishi dealership). Of course, such warranties do exist, but they're more common for new cars than used cars.

In short, if a used car dealer ever tries to sell you an extended auto warranty, make sure to ask flat out: will this warranty cover repairs done anywhere, or just this dealership? Double-check the warranty itself to make sure it has a third-party company's name on it, not the dealership's.

Better yet, why not just buy the extended warranty directly from the warranty company rather than pay the dealer hundreds of dollars of markup on it? That way, you can also research the warranty thoroughly, without pressure.

In fact, you should start investigating extended auto warranties even before you go to the dealership. You'll certainly like the salesperson's face when you tell him you know what the original warranty company charges for the warranty they're trying to sell you. You'll also know in advance how much total the car purchase really will cost you.

Don't wait. Start looking at extended auto warranties now, before the dealerships' salespeople ever have a chance to breathe down your neck.