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About a month or so ago, I went along with my girlfriend to help her purchase a car at our local CarMax.
While I could probably spend an entire post talking about the reasons for and against choosing CarMax to purchase a used car, overall, I have to say that the buying experience at CarMax was a rather positive one.
In particular, my girlfriend liked the ‘no-haggle’ pricing structure they have going on there and the fact that their cars are high-quality/not going to be ‘lemons.’ Perhaps the only drawback to buying a car from CarMax is that it is very difficult to find cars below $10,000 there. This is due in part to the fact that their cars are high quality, but in my opinion, also to the fact that because of their dependable reputation, CarMax knows people are going to be willing to pay a slight premium for cars purchased there.
Apart from the CarMax buying experience being overall very positive, there were two things that were midly “pushed” on us to buy that I thought would be interesting to share with you all (described below):
- A 9.0% APR interest rate car loan.
- CarMax’s MaxCare Extended Service Plan for only $1,000.
CarMax’s Attempt to Push Car Loan Financing On Us
Because of some prior research I had done on the subject of car buying, I knew that while NEW car dealers were offering very low interest rate loans in order to sell NEW cars, USED car dealers made a significant amount of money off of selling loans/financing options for used cars.
And, it turned out that the situation with CarMax was no different. My girlfriend was able to secure a loan from Bank of America for a pretty good rate of ~3.8% APR, while CarMax was willing to give her the same loan but at a 9% APR interest rate. Talk about some good mark up here! As you can imagine (since my girlfriend and I are still going out and have not broken up – haha), she ultimately chose the lower interest rate loan from Bank of America.
However, the strategy that the car salesman tried to entice us in to going with the CarMax in-house financing was rather interesting. What had happened was that the letter guaranteeing the loan from Bank of America needed to be confirmed over the phone by CarMax, but they were unable to make the call since the bank was closed for the weekend (and we needed to wait until Monday). When CarMax heard about this, they gave us an OFFER. They wanted us to walk out of the dealership with the car that night by simply using CarMax’s financing. Since CarMax is apparently nothing but our friend, they even were going to give us the option of coming back within 1 week and canceling the loan (if we decided to go with the Bank of America loan) with no fees or interest involved.
To us, this sounded like a whole lot of complication in exchange for simply getting the car 1.5 days earlier. So, we ultimately decided to simply stick with the Bank of America financing and wait until the bank opened on Monday to go back to finish the car purchase.
However, I was quite fascinated with CarMax’s willingness to swap us in and out of their financing with no fees or interest. It made me wonder if 1) are they just being nice? or 2) do they know from experience that X% of people that walk out with their financing won’t take the trouble to come back and change back to financing that they had secured from the bank?
CarMax’s Attempt to Push the MaxCare Extended Service Plan On Us
So, even though it took me a couple hundred words to explain what transpired with our refusal to take the CarMax in-house financing option for my girlfriend’s used car purchase, it really wasn’t too big of an issue at all. We simply said, “no,” to the nice salesman, and moved on with the paper(/electronic)work.
However, the CarMax MaxCare Extended Service Plan was pressured on us slightly more aggressively.
As a general rule of thumb, I operate on the belief that insurance and extended service add-ons to purchases (large or small) are generally NOT worth the money and are a better deal for the people selling the plan to you than for you the buyer. So, my girlfriend and I had done our homework on this MaxCare Extended Service Plan pumped by CarMax, and we were convinced that it was unnecessary.
Because we had done our homework about the extended service plan, we figured that when we sat down with the salesman at CarMax, it would be fairly simple to ‘just say no.’ Alas, this was not the case. During my girlfriend’s various initial talks with the salesman and subsequent discussions while we were finalizing the paperwork, I would say that the CarMax Extended Service Plan was mentioned no less than 5 times. By the end of it, I felt like we were almost made to seem like we would be IDIOTS for not taking the plan and that ALMOST EVERYONE who buys a car from CarMax gets the service plan. The salesman even threw in a story about one of his friends that is happily using the extended service plan when his car broke down! It was a nice touch! Was it true? Maybe.
When we finally got to the last screen where he could sign us up for the extended service plan and we still said ‘no,’ he actually asked us WHY we didn’t want to take advantage of such a great deal. In reply, I simply said, “NAME OF SALESMAN, let’s just proceed with the sale of the car,” because I didn’t want to give him the chance to bring up some doubts, regardless of how good his intentions were. And, he respectfully followed our wishes. So, overall, despite knowing that the MaxCare Extended Service Plan was not necessary for us, my girlfriend and I still felt very pressured in to buying it, and she felt rather guilty for not doing so at the end of the episode.
Now, this is not to say that CarMax is evil by any means. As I mentioned above, the overall result was quite positive, and I know it’s just part of the game of buying a car. But, it was interesting since I had never gone through the used car-buying process before.
Details of the MaxCare Extended Service Plan from CarMax
During the car buying process at CarMax, the Extended Service plan emerges as a very appealing option. On one hand, the initial cost of the plan is tacked on to the amount you are financing, making it so that you don’t necessarily consider the full cost since you will be paying it off over time. Second, many people coming to CarMax are looking for relief from an unreliable car that they had to make a lot of costly repairs on, so the Extended Service Plan very much catches their eye.
Especially in these slightly elevated pressure buying situations, it’s particularly good to know the facts about what you’re buying in to. So, I wanted to spend a little bit of time in this post discussing what exactly the CarMax MaxCare Extended Service Plan entails, and what it does not!
How Much Does the MaxCare Extended Service Plan Cost?
At a high level, the CarMax Extended Service Plan is a smaller, specialized insurance policy in a car service plan wrapper. The costs of the service plan are summarized below:
- You pay $1,000 at the time of purchase of the plan/your new car.
- Then, each time you need to bring in your car for a repair, you pay a pre-selected deductible, ranging from $100-$500 per visit.
However, the thing that surprised me was that the specific details about the price of the plan and what is and is not covered is somewhat difficult to discern, especially during the car buying process where decisions are being made very quickly.
How the MaxCare Extended Service Plan is Presented and What is and is Not Covered by the Plan
Essentially, what happens is that you are handed over this wonderfully crafted brochure “describing” all of the details of the plan. But, instead of this brochure listing the specific details that I expected such as price of the plan and different deductible levels, etc, it basically seems to be designed to overwhelm the car buyer in to thinking that it covers EVERY POSSIBLE REPAIR THAT COULD EVER HAPPEN WITH THE CAR. This is done by listing out about a thousand or more parts of a car that are covered by the plan, as shown in the picture below:
The catch is that if you read through the listing of parts covered by the plan and then compare it to the back side of the brochure where the plan exclusions are shown, it quickly becomes clear that 90% of the repairs that you will most likely incur on a reliable used car are NOT covered by the service plan (i.e. – they are all listed in the exclusions section).
I’ve highlighted several things not covered by the service plan below:
- Regular maintenance services described in your car’s manufacturer manual. This includes major 30k and 60k mile services and other major component replacements described in your owner’s manual.
- Engine spark plugs and ignition wires.
- Batteries, air conditioner refrigerant, engine coolant, drive belts.
- Brake pads and shoes.
- Suspension work, tires, wheels, catalytic converter, manual transmission work.
- Painting, bumpers, alignment of body parts.
- Repairs made to meet government emission standards.
I don’t know about you all, but looking at the list above on what is EXCLUDED from the plan pretty much encompasses every single costly repair I’ve ever had on my 2004 Honda Accord in the 8 years I have driven the vehicle.
You can view complete details about what is covered by the plan by clicking here and what is NOT covered in the plan by clicking here.
Conclusions
Because of the large amount of exclusions from the MaxCare Extended Warranty Plan, we ultimately decided that it was not the best move for us. And, by sticking to our guns, we were able to resist the pressure from CarMax to buy the service plan and their higher-interest rate in-house financing. And in the end, my girlfriend walked out of CarMax an altogether satisfied customer and is happy in her new, dependable car.
How about you all? Have you ever purchased a used car? If so, did you ever consider CarMax?
Did CarMax or the other used car dealer try to pressure you in to obtaining their financing options or their extended warranty/service plans? Do you think these extended service plans are a good deal?
Share your experiences by commenting below!
***Photo courtesy of http://4.bp.blogspot.com/_5MzkJkgHQEI/TDSrlqyHJXI/AAAAAAAAA-A/WnHWj44Doe0/s320/probe.jpg
krantcents (90)
myfijourney (67)
John S @ Frugal R... (66)
Lance@MoneyLife&a... (57)
Pauline @ Reach F... (43)
As far as the financing a lot of people probably have intentions of cancelling the loan but get busy and forget or are just plain lazy and never end up cancelling it so CarMax makes bank. I also agree that the extended warranty offered with products normally aren't worth it and you can bet if they are pushing it that they make some serious money on it. Good job for sticking to your guns!
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Thanks Lance! I hear ya on the loan! I bet that a lot of people are just like, “meh, I got the car, who cares about several % difference on the loan interest?”
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I don't like extended warranty plans at all because they usually exclude everything unless it's a result of a defective part, which you should be covered by a implied warranty of merchantability anyway. That's why I never buy a warranty!
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Good call Brilliant Finances. That was definitely the case when I checked in to the MaxCare ext. service plan!
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I think my favorite part of this post was that you did your homework. Nice work! You were able to save yourself from a product that didn't fit your needs and you were able to save on having to pay more interest. It's important that we all remember that we are the customers sometimes – we make the decisions to buy, not the sales people.
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Thanks for reading Nunzio!
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CarMax is definitely one of the better used car dealerships and has some good things going for it….and a few to look out for like the warranty and high interest rates (as you mention).
I really like their written guaranteed appraisals on trade-ins (regardless of whether you buy there). I'll actually take that with me to use as leverage to negotiate my trade-in at other dealerships. The only thing to watch out for is that it's only valid for one week….and as I found out the hard way, the second appraisal may not be nearly as generous (it went down a grand for me on my second appraisal, just 2 weeks later when I was ready to sell).
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Thanks for sharing Geoff! I agree. CarMax is definitely got some good things going for them. They seem to be a little more “trustworthy” than a lot of slippery used care dealers out there.
But yeah, I plan to sell my current car this summer, and I'll probably take it to CarMax as the first step in getting an appraisal price.
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Great post. I'm going to share this with my boyfriend. We're going into Carmax today to test drive a car that I've requested and will possibly buy if I like. I've done my research and already decided that I don't want Maxcare. There's just way too many negative reviews and like you've said, it doesn't cover the repairs that you'll probably need. Anyways, I'll make sure to keep my ears plugged when they try to sell it to me.
Glad you like the post Pandabird! Good luck today at Carmax. I'm glad you did your homework about the Maxcare. It'll take a lot of the pressure away that you'll most likely get to buying it.
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I am going into Carmax today to buy a car, and yesterday when I met with a salesperson she did make the maxcar option seem very reasonable. I had her run the monthly payment calculations without the maxcare option as well, and she was visibly annoyed about me doing that, assuming I would of course take the maxcare option. It seemed fishy to me, and I'm glad I read this before going back. I'm certainly going to decline the maxcare now. Thanks for the great detailed post!
Glad you liked the post Chandler! How'd the buying process go after you went back in? Did you end up refusing the MaxCare in the end?
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great post and glad I read it before picking up my “new” used car tomorrow. I was impressed that Carmax offered me $2k more than the dealer for trading my car. And since i purchased a car from them, I saved an additional $850 in sales tax. I was undecided about the extended warranty and after reading this, I too will opt out but I will wait until the end of the process so I don't get sideswiped with the sales pitch.
Glad the post helped out askjudihays!
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I'm buying a car now through CarMax. I also happen to be an ex-employee of CarMax. I ordered a car over the phone from the Internet department as a result of now living a little over 2 hours away from the nearest store. These “fine” folks included the MaxCare in the loan and excitedly told me about it once the loan was approved. I managed an 8% interest rate to boot. I'm keeping the financing, but I am not taking the MaxCare. Why?
Because I'm an ex-employee and I know what it is like to sell a worthless piece of paper to a customer. MaxCare is indeed useless, primarily due to the Exclusions. Most responsible buyers will purchase a low mileage used vehicle that still has a factory warranty attached, like the Kia I am picking up on 11/5/2012. I have 29k miles of the warranty left, which covers the car for two years. Since that warranty already covers the major components of the car, why would I elect to have an additional warranty that does the same thing?
You hit the nail on the head in this blog post. I found it difficult to sell a customer on MaxCare. In truth, I told customers about it and then I proceeded to tell them that they don't need it. I had better luck selling key-less entry, stereos, DVD systems, etc. to customers than trying to push a silly $1000 piece of paper on them. Did it hurt my income? Probably, but I felt better knowing the customers weren't totally throwing money away. Before I was an employee of CarMax, I was a customer. I know what it is like to be on both sides of the “table”. Every car I bought from CarMax, 10 of them to be exact, has been great. I've had my fair share of new cars too, but the CarMax process is always pleasant. For used cars, they are my number one recommendation — just don't buy anything else, trust me.
Wow! Thanks so much for sharing Bryan. It's great to hear your experiences from the perspective of an ex employee.
I'm curious – how much of a commission did you get for each MaxCare program you sold?
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When I was working for CarMax, it was $150 per car sold and an extra $100 for each MaxCare sold. Anything additional, like the add-ons I mentioned, had no incentive. When I bought the Kia back in October, I asked my salesperson what they were paying out now for car sales and it had gone up to $160. I worked for CarMax in 2004, and in 8 years, the payout only went up $10! I did not inquire as to what the incentive payout was for the MaxCare.
Please don't take anything I've said the wrong way. CarMax is a great company with great vehicles. Honesty goes a very long way in my book, and you'll always find honesty with the cars at CarMax. But like everything else in this world, it is the “extras” that will hurt you. In two years or so, when my manufacturer's warranty runs out, I might be kicking myself. But in two years, I can always get another vehicle and I won't be kicking myself for being upside down in my loan because of a $1200 add-on.
Great info. But, what about a scenario where you want to buy a 2005-6 vehicle with a good overall reliability rating with about 50k miles on it? Since the vehicle is no longer under factory warranty do you think an extended warranty to 100k miles would be worth it at Car Max? Thanks.
I am a CM customer. I am paying on a 03 Honda Odyssey. I have the MaxCare coverage also.
My Transmission is failing, and I am about to take it up to Car-Max to see about getting it repaired.
The AT with labor exceeds the cost of the warranty, so that's good. I will have to pay a deductible..
You can never expect a warranty to pay for regular maintenance items like oil changes, tune up items, belts, etc.. that is up to the the owner… but what if you have a engine problem, transmission problem.. or anything drive-train related.. I believe this is when the Max Care warranty benefits.
Thanks for sharing Jonathan! Sorry to hear your transmission is failing. When something big like that breaks, sure, it is definitely worth it to have the coverage.
However, how often does it happen probably on CarMax cars since they are in very good shape? By the numbers, most people will likely never use their CarMax MaxCare coverage in my opinion.
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Thanks for the info. Im wondering about the legitimacy of Max Care since Im looking into buying a late model (2006) with about 50k miles. If the AT was repaired could you share how the experience was with getting Max Care to take care of the problem.
I think CarMax was a great buying experience. I never was pressured at all. As far as MaxCare, it fixes the really, really high cost repairs such as transmissions, engines, air conditioners etc. Oil changes, spark plugs, brake linings, 30K, 60K maintenance are part of the owner's responsibliity. No one will warranty normal ware and tare, and I don't have a problem with that. It's sort of the cost of driving a car that everyone has.
Thanks for sharing Joe!
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I'm normally not a big fan of extended warranty's either. I purchased a an SUV from Carmax that was 6 years old with 65,000 miles on it. The factory warranty is about to expire and I plan on keeping this vehicle well past 125k miles. In this instance, I did, and I'm glad I did. I am now covered, as long as I maintain it, for 6 years or until it reaches 125k miles. This cost me $1,300, which I spread over the loan. I just feel better knowing that will all the expensive systems including the all-wheel drive system, the engine and the dual heating and a/c systems, that the most I have to shell out is $250.
I've bought a Acura 2008 MDX just yesterday, 3/26/2013 for $29k with 100k MaxCare for 6yrs costing another $1700, cos. I'm spending around $32k for the vehicle (incl. tax, interest, etc.) and it's already 5yr old model. Today, on 3/27 itself, battery went down, but they replaced with a new one, as I'm within the 30 day full warranty. I took it to Firestone immediately to get it complete inspection, they told it doesn't have any issues, it's a nice one. After reading all these posts, battery got replaced next day, I'm not sure whether to keep the vehicle,cos. I can return and cancel the sale in 5 days to get my money back (3k down payment as well) or just cancel MaxCare alone (after reading all those out of warranty) or to keep the car and MaxCare as Jonathan mentioned, end of my 10th year, I might get issues, as this is a premium model, you never know what breaks down after 10yrs.
BTW, I just did KBB value, it's actually $2k less than dealer value, has no accidents from CarMax report.
pls advice, I still have 3 more days to decide to return the vehicle / just cancel MaxCare to save me $1700 or keep both.
Thanks for your comment jinishans!
Since most of CarMax's cars are very dependable/high quality/not lemons, I think the battery going out was just a fluke. Plus, batteries aren't that costly to get replaced anyhow.
I would just cancel the maxcare and keep the car.
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Extended warranty sold by CarMax is no different than most factory warranty from the manufacturer. Ford or Nissan or whomever usually won't cover oil changes and brake services, unless you bought a car with upgraded maintenance program. I think it's unreasonable to expect a warranty to cover every expense associated with the ownership of a vehicle.
I purchased a Nissan Quest from CarMax in 2011 that was out of factory warranty and added a warranty package to the purchase because I wanted to know that any major engine, transmission, or all the stupid power door / window / liftgate repair that comes along will be covered. Indeed, the exclusion is long, but the exclusion are mostly wear and tear items. Like buying some types of insurance, it's not for everyone, and you might feel ripped off if you car never breaks down, but that's the point of insurance: in case you need it.
I felt our experience at CarMax was also positive, and the finance presentation is similar to the OP's experience. The warranty, on the other hand, was something that I already understood and was happy to purchase. My perspective.
Thanks so much for sharing your experience Alon! Glad to hear you had a positive buying experience at CarMax as well. I think that overall (minus the MaxCare), my girlfriend and I's buying experience couldn't have been smoother.
I think that there is a place for the extended warranty for folks that really feel that they need the protection. However, I think the problem is that the MaxCare warranties are sold to people who do not understand what they do and DO NOT include, and that's where it becomes problematic.
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No, you are wrong. MaxCare is nothing like a factory warranty.
MaxCare is administered by a shady third party whose business is to maximize profit by denying claims, making it as hard as possible to execute a legitimate claim, and covering as little as possible.
CarMax has no ties MaxCare, other than a kickback for selling an almost completely worthless warranty. They do not back the warranty like a manufacturer does with a factory warranty. The name “MaxCare,” in this regard, is totally misleading.
Sorry..but I have to disagree on not buying warranties or extended service plans on used cars when available at a reasonable price (and you're getting a good deal on the car) They usually cover the electrical, transmission, engine, and air conditioning up to 5 years or 100K miles (whichever comes first. I can tell you right now that if your transmission goes out, you're looking an 3k…and if the a/c goes out on 100 degree day…good luck. I bought a 2007 Infiniti G35 sedan from Carmax in Dec 2010 and I was against the service plan at first, but bought it anyways because I got a great deal on the car. I never had to use it yet, but, I've never had to worry about some unexpected costly repair. I'm considering buying another extended plan up to 125K because I'm at 95,500 right now and I don't want to get stuck with a 3k transmission bill or other unexpected costly repair down the road.
Thanks so much for sharing your experiences Mark!
As I mentioned above, if someone absolutely needs to the assurance of an extended warranty plan to sleep well at night, then it's probably OK to buy it.
However, I still don't think that most people need the MaxCare plan, for the very reason you mention. Sure, the MaxCare coverage is a nice thing to have, but most people that buy them will never have to use them (as you mentioned above). Thus, the $1k they paid for the plan was wasted.
For example, I've had issues with my manual transmission with the clutch needing replacement or with my A/C going out on a hot summer day due to the refrigerant needing replacement. However, neither of these things would have been covered by the MaxCare anyway since they are not “major” enough.
In my opinion, the better option to protect yourself against these rare breakdowns that would cost $3k would be to have an adequate emergency fund on hand.
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2 years ago I bought a 2009 Saab 9-7x with 44,000 miles. Saabs are covered for 50,000 miles. I, too, fell for the extended warranty in which I'm looking at right now. The price is $1,350 for 72 months or 75,000 miles registered on the odometer-whichever occurs first. I gather I bought a $1,350 piece of paper for “the peace of mind” for only 25,000 miles!!!!! How bad did I screw myself??
Thanks for reading Ouch. So sorry to hear that that happened!
Did the CarMax representative give any indication about the mileage when you bought the car/plan?
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Are you sure its not 75,000 additional miles which would be 111,500 on the odometer (44,000 + 75,000)
CarMax has bought me a total of 3 transmissions and about 5 other $600 plus repairs over the 5 cars I have bought from them. I am thinking about $10,000 in repairs for $6,000 in Warranties. You do have to be careful. I too bought a warranty on a JAG which had about 1/2 of the Manufactures warranty left on it. . However today I bought a Nissan with 5,000 of it's warranty left, making the additional $2,000 for 120,000 miles look pretty much like a good thing. I am a high mileage driver and will likely run the odometer up to 150,000 over the next 6 years. Each situation is different, do your homework! If I bring the car to Carmax for repairs I pay NOTHING for the repair.. $50 if I go to my choice of there selected service partners (which I have done without any problems in the past). Carmax is looking for repeat business, they are much more up front then any other dealer I have found.