Certified Pre-Owned Cars Vs. Used Cars With Warranties

What is a certified pre-owned vehicle?

A certified pre-owned car, or CPO for short, is a 1- to 5-year-old vehicle that has been lightly used, thoroughly inspected and covered by a manufacturer-backed extended warranty. The CPO warranty often kicks in once the new-car warranty has expired and typically adds one to two years of coverage. Certified pre-owned programs also offer additional benefits, which may include roadside assistance, free maintenance, satellite radio subscription and trip interruption coverage. Finally, some CPO vehicles might even have low finance rates, offered as promotions that are lower than a traditional used-car deal. Those benefits come at a cost, however, as certified pre-owned vehicles are typically more expensive than equivalent non-CPO vehicles.

Everything You Need to Find the Perfect Certified Pre-Owned Car
CPO vehicles are perfect for value-conscious shoppers who want a thoroughly inspected "near-new" car with a solid warranty. Learn more about CPO vehicles.

What does "certified" really mean?

Because the term "certified" has a perception of higher quality, there are some dealerships or car-buying websites that will slap on an official-looking sticker or label on their used vehicles, claiming they are "certified" after they've put them through a basic inspection or reconditioning. Those cars are not actual CPO vehicles. They may include a warranty, but it may only be good at that dealership and has likely not met the manufacturer's criteria for inspection. Additionally, only a genuine CPO vehicle can qualify for the additional perks of a CPO program.

The cardinal rule is this: Only a manufacturer's franchised dealer can sell that manufacturer's certified pre-owned vehicles. This means that if a dealership can sell new BMWs, then it also can sell BMW CPO vehicles. It cannot, however, offer a Lexus or any other brand vehicle as an official CPO car.

If a salesperson tells you he or she will "certify the car" for you if you decide to buy it, or if you see a "certified" listing online with the dealership's name rather than the automaker's, we recommend that you say no. What you're actually being offered, in most cases, is a service contract or extended warranty.

Is it better to buy a used car and add an extended warranty?

Adding an extended warranty might seem like a logical alternative to a genuine CPO car, but it can be extra work for negligible benefits. In your search for a vehicle, the onus will be on you to have it inspected and determine if it is in good condition. With a CPO vehicle, that's taken care of already. Plus, the condition of the non-CPO used car may not be equal to that of the CPO vehicle. There could be something about that used car that has kept it out of the CPO program. It may be too old, have too many miles, or have some body dings that disqualified it.

Things get more complicated when it comes to the warranty. The easiest move here would be to purchase a manufacturer's warranty, as long as the used car is still within its original factory warranty. But if you're looking to save some money, you'll likely be choosing a warranty offered by a third-party company. Some of those have solid reputations, but many are spotty. You'll need to do your homework on pricing and coverage.

The extended warranty also might not be as comprehensive or offer coverage that's as flexible as a certified pre-owned warranty. For example, if the car needs repairs, your only option might be the dealership that sold you the car. With a manufacturer's extended warranty (also referred to as a service contract), you can take your vehicle to any of their dealerships nationwide.

Finally, remember that you'll be managing two negotiations: one on the price of the used car and — if you want to be a smart shopper — one on the cost of the warranty. These warranties are high-profit items for car dealerships, and it can be difficult for the average consumer to research the actual cost. When all is said and done, the CPO car might be easier to buy and perhaps even less expensive. If you still want to go this route, make sure to ask these five questions before purchasing an extended warranty.