Extended Car Warranties: Are They Worth It?

If you’re buying a new car or a used one, you will likely face the decision of whether or not to purchase an extended warranty.

An extended warranty typically covers the cost of certain repairs after the manufacturer’s standard warranty (which usually lasts three years or 36,000 miles, whichever comes first) expires.

These policies can help you breathe a little easier, knowing that if your vehicle needs a pricey repair in the future, some or all of the cost could be covered.

On the other hand, an extended warranty can be expensive in and of itself and usually don’t cover every possible repair. So it could wind up being a big expense that doesn’t really pay off.

In this guide to extended car warranties, you’ll learn about what these policies do, their pros and cons, and whether one might (or might not) make sense for you.

What is an Extended Car Warranty?

When buying a new car, it likely comes with a manufacturer’s warranty. An extended warranty is an optional plan you can buy to help you pay for the cost of certain repairs your vehicle may need while you own it, after that original warranty expires. You may be able to get an extended warranty when buying a new or used car (the latter may depend on whether the policy is transferable; more on that in a minute.)

•  Extended car warranties, also called extended service contracts, typically cover the price of major repairs or replacements (with exclusions) for a certain number of years or number of miles.

•  The extended warranty usually begins when the manufacturer’s warranty expires, but sometimes the two overlap.

•  While these plans are often offered at the point of sale, you can typically purchase them any time until the original manufacturer’s warranty expires.

•  Extended warranties are also offered by third-party vendors.

If you’re interested in getting an extended car warranty for a new or leased car, it can be worth going online to compare policies from independent providers to see exactly what each one covers, what’s excluded, and how much it costs. This can help you decide which warranty would work best for you and whether it is worth getting.

What Does an Extended Car Warranty Cover?

Just as you may wonder, “What does car insurance cover?” you may be curious to know, “What does an extended car warranty cover?” Exactly what the policy covers will vary with every provider and the type of warranty you choose.

The only way to know for sure is to carefully read the extended warranty policy agreement, but here are some general rules of thumb.

What It Covers

Extended warranties typically cover the major mechanical parts of your car, such as:

•  Engine

•  Transmission

•  Steering

•  Suspension

•  Clutch

•  Air-conditioning

•  Electrical systems, including in-car audio and navigation systems.

So if your engine blows or oil starts leaking, it will likely be covered. Coverage may not be 100%, however, and you may have to pay a deductible before coverage kicks in.

Some policies also offer add-ons like 24/7 roadside assistance, rental car reimbursement, trip interruption service, and tire protection.

What It Doesn’t Cover

Generally, extended warranties won’t cover routine maintenance or damage caused by normal wear and tear, such as:

•  Oil changes

•  Replacing the timing belt (unless it fails before the recommended replacement time)

•  New tires

•  New brakes

•  Windshield wipers.

If an item isn’t listed in the policy, you can assume it’s not covered.

How Much Does An Extended Car Warranty Cost?

Pricing will vary depending on the type of vehicle, what the plan covers, what the deductible is, and the length of the contract. The upfront cost of the warranty can range from $1,000 to $3,000 or more. If you’ve been saving up for a new car, that can be a significant additional expense.

If you purchase a car warranty from a dealer and include it in your financing, you are likely also going to pay interest, which will increase the total cost of the warranty.

You might have to pay a deductible every time you submit a claim, plus kick in money for a portion of the bill.

Pros and Cons of Extended Car Warranties

Whether you should get an extended car warranty or not is a personal decision. It will depend on how reliable the car is and, if you’re buying a used car, how old the car is. It will also depend on how well you would be able to manage if your car encountered a problem that will be costly to fix.

Here are some pros and cons you may want to consider when making the decision.

Pros of an Extended Car Warranty

First, the potential upsides of an extended car warranty.

•   You may save money. If your car needs a very costly repair that’s covered under your extended warranty, you could save money. Instead of paying the entire bill out of pocket, you’d only be responsible for covering the deductible (if you have one) and then the warranty provider would pay for all or most of the rest.

•   It provides peace of mind. If you’re worried about how you would cover a car repair bill, having an extended warranty can make you feel less money stress over something going wrong with your car. If your plan also incorporates roadside assistance, you won’t have to worry about breaking down on the road.

•   It can make your car more attractive to a future buyer. If you plan to sell your car down the road, a transferable warranty can make your car more appealing to prospective buyers.

Con of an Extended Car Warranty

Now, some of the downsides of extended car warranties to consider.

•   You may never use it. Many people who purchase an extended car warranty don’t wind up using it. And if they do, the cost of the repairs they need may be less than the cost of the warranty.

•   There may be overlap. If the coverage period of the extended warranty overlaps with the manufacturer’s warranty, you may end up paying for coverage you’re already getting at no cost.

•   Exclusions and limitations. Every contract comes with fine print that specifies how you can use the warranty. For example, the provider might deny coverage for a problem caused by normal wear and tear or reduce the payout based on your car’s depreciation. You may also be required to take the car to certain auto repair shops to be covered.

Are Extended Car Warranties Worth It to You?

If you are trying to decide whether a car warranty is worth it, here are a few times it may be a good investment.

1. When Your Car Is Unreliable

If you were to buy a car you were leasing and you know it tends to have a certain kind of issue (maybe the A/C is temperamental), then an extended warranty might be a good idea.

2. When You Are Worried About Getting a Big Repair Bill

If you know that you couldn’t handle a large repair bill if you were to receive one, it might be wise to get an extended car warranty. Yes, it will cost you, but it could help you avoid incurring high-interest credit card debt at an inopportune time.

3. When You Are Planning to Keep Your Car for a Long Time

Perhaps you are planning on selling your vehicle and then buying or leasing a car in the next year or two. In that case, it might not be worth it to purchase an extended car warranty.

However, if you are in it for the long haul, so to speak, you might benefit from an extended warranty. Over the years, repairs can inevitably crop up. This kind of policy might help you organize your bills better and afford to pay them.

One point to note: With an extended car warranty, it may be especially important to keep up with the cost of car maintenance. Not maintaining your car properly could lead to the insurance becoming void.

5 Tips for Choosing an Extended Car Warranty

If you decide an extended warranty makes sense for you, it’s a good idea to look at the policy contract closely — this is where you’ll find the fine print that spells out all the rules and exceptions — and not just the glossy brochure or the online advertising.

If the seller won’t show you this info before you sign on the dotted line, it can be wise to take your business elsewhere.

Here are some things you may want to look for in a contract before you sign.

1. Check the Deductible

Look at the deductible: You might have to pay $100 or more out-of-pocket every time you get a repair, before the coverage kicks in. It’s wise to know what you are signing up for.

2. Understand Whether the Policy Is Transferable

This is a consideration if you are thinking of selling your car down in the future. Typically, these contracts aren’t transferable if you sell to a dealer. So if you are thinking you might want to offload your vehicle before too long, definitely weigh this factor.

3. Know How the Service Contract Pays Out

In some cases, you may have to foot the bill and then file a claim to get reimbursed. With this scenario, it’s possible that after you pay for a repair, the claim can be rejected. If this feels like a challenging prospect, you may want to review a variety of extended warranties and see if there is one (or some) that offer a better fit.

4. Delve into the Exclusions and Requirements

You will need to read the fine print to find out what repairs are and aren’t covered and other limitations or restrictions. If, say, you have a particular concern (such as the example above, with a car that has temperamental air conditioning), you will want to make sure you are covered.

5. Check Where You Can Go for Repairs

Manufacturer-backed contracts typically require that you go to a dealer. Third-party vendors may have restrictions on where you can take your vehicle, or they may let you choose the repair shop. It’s wise to see what options are available and which extended car warranty best suits your needs.

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Third-Party Extended Car Warranties

Typically, you will have a choice between an extended car warranty from the original equipment manufacturer (or OEM) and one that comes from a third party.

The OEM will be the car brand, such as Toyota or Ford? What exactly is a third-party extended car warranty? It means that a company that is not the car brand is offering you this policy. It might be an insurance or a warranty company.

Third-party policies are similar to and possibly less expensive than OEM ones, but look carefully at these points. Third-party coverage can be more restrictive and limited:

•  Are there limitations regarding what is covered?

•  Do you have your choice of where your car will be repaired, or will the policy dictate that?

•  Does the policy specify that OEM parts must be used, or could any type be used?

•  What is the deductible?

•  Will you have to pay for repairs out of pocket and then be reimbursed?

By sizing up these factors, you can find a policy that suits you best.

Recommended: Is it Smart to Buy Your Leased Car?

The Takeaway

An extended warranty could add thousands of dollars to the purchase of a car but can, in some circumstances, offer additional protection that makes it a wise buy. However, your circumstances will play a key role in whether an extended car warranty is worth it.

If you would have trouble covering the cost of a major repair and/or worrying about car expenses keeps you up at night, the cost of one of these contracts might be worth the peace of mind it can bring.

If you’re buying a vehicle with a reliable track record, however, it might make sense to skip the warranty and, instead, set aside the money you’d spend on it, and then use the funds for needed repairs.

If you don’t end up using all of it for your car, you can keep saving it or use it for something else.

FAQ

Do you really need a car warranty?

Nearly all cars come with a warranty that lasts 36 months or 36,000. Whether to get an extended warranty can depend on how much you want that peace of mind, whether you feel you couldn’t afford a major repair otherwise, and if you feel your car is unreliable.

Is it worth it to get an extended car warranty?

Whether an extended car warranty is worth it depends on your personal situation and your car. If your car tends to need a fair number of repairs or if you plan on owning it for a long time, or if you worry you wouldn’t have funds available for repairs, it can be a wise move. But if you don’t like paying for a policy you may never use, it may not be a good fit.

What are the disadvantages of an extended warranty?

In terms of the cons of an extended warranty, consider that it will probably cost at least $1,000 or more and have a deductible. It may have limitations about what is covered, it may not stipulate that original equipment manufacturer (OEM) parts be used, it may not allow you to pick where the repair is done, and you may have to pay out of pocket and then get reimbursed.

Photo credit: iStock/Pekic

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