A used vehicle warranty is an extra promise on top of the buyer's legal rights, never a replacement for them. Under the Consumer Rights Act 2015, every vehicle you sell to a consumer must be of satisfactory quality, fit for purpose and as described, whatever warranty you do or do not offer. Your real choice is between three types of cover: insurance-backed, self-funded by you, or the balance of a manufacturer warranty, and only the first one normally brings FCA rules into play.
This is general guidance, not legal advice. If you are setting up a warranty scheme, take advice on your specific arrangement.
Start with what the law already gives the buyer
When you sell a vehicle to a consumer, the Consumer Rights Act 2015 puts three terms into the contract automatically: the vehicle must be of satisfactory quality, fit for purpose and as described. Satisfactory quality takes account of the description, the price and other relevant circumstances such as age and mileage, so a ten-year-old hatchback at £3,000 is not judged like a two-year-old one at £18,000. But it still has to be what a reasonable person would call satisfactory for what it is.
A few rules matter most for dealers:
The 30-day short-term right to reject. A consumer who finds a fault within 30 days can reject the vehicle and ask for a refund (section 22).
The six-month presumption. If a fault appears within six months of delivery, the law presumes it was there when the vehicle was handed over, unless you can show otherwise (section 19).
Repair or replace, then final rejection. After 30 days, you get one go at a repair or replacement. If that fails, the buyer can ask for a price reduction or reject the vehicle. For motor vehicles specifically, you can make a deduction for the use the buyer has had, even in the first six months (section 24).
You cannot sign these rights away. A term that tries to exclude or restrict them is not binding on the consumer (section 31). "Sold as seen" or "no warranty" on a consumer invoice does not remove them.
What a warranty actually adds
If the legal rights exist anyway, why do buyers ask for a warranty? Because the legal rights are hard work for the buyer.
A buyer whose gearbox fails in month eight has a statutory right, but they also have to show the fault was there at delivery, argue about it with you, and possibly go to a solicitor or the small claims court. A warranty turns that into a claim form and a phone number. That is what buyers are paying for: certainty and an easy route, not extra legal rights.
That is also what they expect when they see the word on your advert. In practice, used vehicle buyers tend to look for:
- A stated period, commonly three, six or twelve months.
- A clear list of what is covered, in plain language.
- A claim limit they can understand.
- Somebody to call when something breaks, and a sense of whether they can use their local garage.
The detail varies by provider and policy, so never quote a period or claim limit on an advert unless it matches the actual document the buyer will receive.
Option 1: insurance-backed warranties
This is what most people mean by a used vehicle warranty. A third-party provider underwrites the cover, an administrator handles claims, and the dealer sells the product either included in the price or as an optional extra.
Why dealers use them. The risk sits with the insurer, not you. A big claim does not come out of your margin, and the buyer deals with a claims line rather than turning up at your door.
Where the FCA comes in. An insurance-backed warranty is a contract of insurance. Selling or arranging insurance is a regulated activity, so the dealer normally needs to be authorised by the FCA, or to sell as an appointed representative of an authorised firm. An appointed representative carries on regulated activity under the responsibility of the authorised principal, which is how most small dealers sell insurance products. Most warranty providers will set this up with you, and you should check the provider and any principal on the FCA Register before you sign anything.
Being in the regulated world also brings the FCA's Consumer Duty with it, which is about fair value and making sure the product is right for the customer. We covered that in Consumer Duty for car dealers.
Tax. Insurance-backed warranties carry Insurance Premium Tax. HMRC's IPT guidance sets a standard rate of 12% and a higher rate of 20% that can apply to certain insurance sold with some motor vehicles. Your provider should tell you which applies to their product.
Option 2: self-funded dealer warranties
Some dealers skip the insurer and stand behind their own vehicles: "three months parts and labour, bring it back to us." You fund any repairs yourself.
The appeal. No premium leaves the business, repairs are done in your own workshop or by a garage you trust, and a vehicle you sold well rarely costs anything.
The FCA position. The FCA's perimeter guidance (PERG 6.7) deals with this directly. It gives typical motor dealer warranty schemes as an example, including a verbal undertaking where no money changes hands and a dealer-run scheme, and says that, provided the dealer's obligations are not too extensive, the FCA would not usually classify them as insurance. The line moves as the promise grows: a warranty that is significantly more extensive in scope or duration than your normal quality obligations, or that is provided by a third party, is more likely to be insurance. If you are thinking of selling a long, separately priced dealer warranty, take advice first.
The risk. You are the insurer now. One turbo or one automatic gearbox can wipe out the margin on several vehicles. If you offer this, set a sensible period and a per-claim limit, write it down, and put money aside.
Write it down properly. A warranty given free with the vehicle counts as a guarantee under section 30 of the Consumer Rights Act. It is binding, it has to be in plain and intelligible English, it must state that the buyer's statutory rights are not affected, it must give your name and address and the duration and territorial scope, and you must provide it in writing if asked.
Option 3: the balance of a manufacturer warranty
Younger stock often still has some of the manufacturer's new vehicle warranty left. Many manufacturers offer three years, some considerably longer, and the remaining cover usually passes to the next owner.
Use it, but check it. Confirm the start date (normally the date of first registration) and any mileage limit, and check whether the cover depends on servicing at particular intervals or within the manufacturer's network. A missed service can matter, so look at the service record before you put "manufacturer warranty remaining" on the advert.
What warranties usually include and exclude
Every policy is different, so read the actual wording. As a general picture, though:
Typically covered: mechanical and electrical failure of listed components, such as the engine internals, gearbox, clutch hydraulics (often not the clutch plate itself), turbo, steering and the main electrical units. Higher tiers widen the list.
Typically excluded: wear and tear items (brake pads and discs, tyres, wiper blades, bulbs, clutch friction material), routine servicing, bodywork and paint, damage from accidents or misuse, faults that existed before the cover started, and failures caused by missed servicing.
Typically limited: a per-claim limit, sometimes tied to the vehicle's value, a labour rate cap, and a requirement to get authorisation before work starts.
The exclusions are where most arguments start. If the buyer thinks "warranty" means everything and the policy says otherwise, the disappointment lands on you, not the provider. Walk the buyer through the exclusions at the handover, and make sure the policy document matches what your sales team says.
What warranties cost
Costs vary too much between providers, vehicle types, ages, mileages and cover levels for us to quote a fair range, and we would rather give no figure than a misleading one. What drives the price is broadly predictable: the age, mileage and engine size of the vehicle, the length of cover, the claim limit, the components covered and whether you add extras like breakdown cover.
Two practical points do hold for every dealer:
Know your cost per vehicle. If the warranty is included in the price, it is a cost of sale, just like prep and delivery. Put it against the vehicle so your margin is real. The car dealer profit margin calculator is a quick way to see how much a warranty changes the numbers on a given car.
If you sell it as an extra, price it for fair value. That is part of Consumer Duty for regulated products, and it is also just good business.
Keep the paperwork with the sale
The warranty that causes trouble is the one nobody can find. Keep the policy number, start date, cover level and the document the buyer signed with the sale record, not in a drawer. In Vehiso, the dealer management system keeps the vehicle, the customer and the invoice together, so the details are there when the buyer phones in month five. The invoice itself is a good place to show plainly what was included, which our invoicing page covers.
Frequently asked questions
Do I have to offer a warranty on a used vehicle? No. There is no legal requirement to offer a warranty on a used vehicle. However, the Consumer Rights Act 2015 applies to every consumer sale regardless, so the vehicle must be of satisfactory quality, fit for purpose and as described even if you offer no warranty at all.
Does a warranty replace the buyer's Consumer Rights Act rights? No. A warranty sits on top of the buyer's statutory rights and cannot reduce them. Any term that tries to exclude or restrict those rights is not binding on a consumer, and a free guarantee must state that the buyer's statutory rights are not affected.
Do I need FCA authorisation to sell a used vehicle warranty? If the warranty is insurance-backed, selling it is normally a regulated insurance activity, so you need to be FCA authorised or an appointed representative of an authorised firm. A simple warranty you fund yourself, which is not much more extensive than your normal quality obligations, is not usually treated as insurance under FCA guidance. If in doubt, take advice before you start selling.
What does a used vehicle warranty usually not cover? Most policies exclude wear and tear items such as brakes, tyres, wiper blades and clutch friction material, along with routine servicing, bodywork, accident damage and faults that existed before cover began. Many also require the vehicle to be serviced on time. Always read the policy wording rather than relying on a summary.
