Are Extended Car Warranties Worth It?
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Are Extended Car Warranties Worth It?

By Autolist Editorial | November 3, 2020

Cars typically come with a manufacturer's warranty that lasts between three and five years. However, you can extend this protection through a warranty from another provider. Whether an extended warranty is worth it depends on a few factors, including how long you plan to keep the car and whether you make a claim.

How does an extended car warranty work?

Extended car warranties, also called vehicle service contracts, cover the cost of specific repair and maintenance services. When you purchase this coverage, you decide how long you want it to last (usually in terms of miles or years), what type of car repair the warranty covers, and what level of deductible you want to pay.

You make monthly payments to the extended warranty provider (think of it as an emergency fund), and the warranty covers repairs if your car develops a problem — though many companies require you to pay a service charge. Unlike car insurance, which covers damage from accidents, an extended warranty helps cover the cost of breakdowns associated with manufacturing defects.

Extended car warranties do not usually cover routine maintenance or items like tires, and they can become void if you don’t perform routine maintenance and keep your car in working condition. Some aftermarket additions can also void part of the contract, including subwoofers, certain wheels and high-end electronic accessories. Aftermarket products may be eligible for their own warranty, though.

New and used cars: Are Extended Car Warranties Worth It?

There’s a good chance a salesperson will try to sell you a warranty when you buy a new or pre-owned vehicle from a dealership, but you can also get an extended warranty for a car you already own.

New car extended warranties: It’s often unnecessary to get an extended warranty with a new car. New cars are more reliable and often come with a manufacturer’s warranty or a powertrain warranty, so there’s less need for a new car warranty. You can almost always get coverage later, but be aware that a gap in warranty coverage may increase the cost if you purchase an extended auto warranty in the future.

Used car extended warranties: Many used car dealerships participate in certified pre-owned programs that provide warranties similar to those on new cars. This makes an extended warranty a better option on a used car sold as-is or without a dealer warranty. Getting a used car warranty makes even more sense if you buy a car with relatively low reliability ratings or high repair costs, such as some luxury vehicles that may be more likely to suffer mechanical breakdowns.

Pros and cons of extended car warranties:

Like with any car-related decision, there are benefits and drawbacks to buying an extended warranty. For some car owners, not having to worry about expensive repairs down the road is worth it, but others might never put their warranties to enough use for the cost to make sense.

Car warranty benefits:

People usually buy extended auto warranties to save money long term or avoid a significant out-of-pocket repair bills they can’t afford. An extended car warranty provides other benefits, including:

Customizable coverage: You can customize your warranty coverage to your specific needs. If you have a warranty that’s about to expire, you may be able to purchase a vehicle service contract similar to your existing warranty and functionally extend the original warranty’s coverage.

Keeps your car running longer: An extended warranty may help you keep your car operational longer, letting you get more value out of it. This is especially true if you choose an extended warranty that has a longer coverage term.

Saves on costly repairs: Extended warranties help car owners avoid the expensive cost of repairs that they otherwise might not be able to afford. Even though cars are getting more reliable, their advanced technology can be expensive to repair, and certain parts, like transmissions, can cost several thousand dollars to replace. A car warranty means you don’t have to worry about a costly auto repair, and your warranty might pay for itself with one significant repair.

In addition to repairs, many programs include 24/7 roadside assistance, free towing and coverage for rental vehicles. Plus, most car warranties are transferable, so you may be able to get a little more for your car if you sell it.

Car warranty drawbacks:

When purchasing an extended warranty, you are essentially gambling that your car will break down during the coverage period, which means you could be paying for nothing but peace of mind. Additionally, some buyers end up paying more for the warranty than they would have for repairs because of:

High costs: Extended car warranties can be expensive, especially on newer cars with advanced technology or unusual components. The cost varies based on your vehicle's make, model, year and mileage. How much coverage you want and your warranty provider also affect the price. You also have to consider the warranty's deductible; a high deductible may mean it's not financially smart to file a warranty claim for a repair that costs less than the deductible.

Limited coverage: Vehicle service contracts have very specific terms and conditions, so having a warranty does not automatically guarantee that every part is covered. This means you may end up paying for a warranty that isn’t of any use for the car problem you have. Purchasing more comprehensive coverage may let you avoid this problem, however.

Limited repair providers: Another potential drawback to a car warranty is that you may be required to take your car to an approved repair facility if you need a repair. This could put you in a bind if you need an emergency repair or move to an area where there is not an approved provider. Car warranties also typically won’t cover repairs that you do yourself — in fact, doing your own repairs could void the warranty.

How to find reputable extended car warranty companies:

Unfortunately, some companies scam people under the guise of offering extended warranties. This is why we suggest choosing a provider with a long history and solid customer reviews, whether it’s a dealer or a third-party provider.

Dealers: When you buy a new or used car from a dealership, the salesperson will likely try to talk you into an extended warranty with your purchase. The Federal Trade Commission warns that unscrupulous car dealers might include a vehicle service or maintenance contract in your loan without your consent, so be on the lookout.

Third-party providers: Third-party warranty companies don’t have a direct relationship to your vehicle like the dealer or manufacturer does. However, you may be able to get a warranty through a third party at a more competitive price. If you're purchasing online from a third-party warranty provider, spend extra time to make sure the company is legitimate.

Extended auto warranty providers offer different plans, so check to see how much each plan covers and whether it requires you to go to a mechanic inside its network.

Most third-party warranty companies have larger service networks and let you get repairs done at any licensed auto shop. However, vehicle service contracts from dealers usually require you to have repairs done at an authorized service center. This practically guarantees you can get the right part when you need it, but a local repair shop that you’re loyal to might not be able to honor your warranty.

Whether it’s a dealer or a third party, a reputable warranty provider should be able to answer all your questions, provide a list of coverages and exclusions and give you a no-obligation quote. We also suggest looking for a plan that offers 24/7 roadside assistance, a money-back guarantee and an easy-to-understand cancellation policy.

Car Warranty FAQ:

What is a vehicle service contract?

Extended auto warranties purchased from third-party providers are technically vehicle service contracts. This contract is an agreement between you and the provider where, in exchange for payment, the provider covers the costs of specific unexpected repairs.

Can you cancel an extended warranty?

You can usually cancel an extended warranty at any time. However, you may have to pay a cancellation fee. Some providers give prorated refunds.

How much is an extended warranty on a new car?

There is no set price for an extended warranty on a new car, but prices usually range from $1,000 to $3,000 when purchased upfront with the vehicle. Several factors affect the price of an individual warranty on a new car, including the vehicle's make and model and how much coverage you want.

What does a bumper-to-bumper warranty not cover?

A bumper-to-bumper warranty does not usually cover brake pads, windshield wipers, seat belts and other parts that wear out with standard use. If you have a bumper-to-bumper warranty, check the vehicle service contract to find a list of any additional named exclusions.

Are extended warranties required?

No, extended warranties are entirely optional and not required by law. If you plan to have your car longer than the manufacturer's warranty lasts, however, it makes sense to consider an extended warranty.

How do I know if my car is still under warranty?

Your dealership can provide you with information about the manufacturer's factory warranty or powertrain warranty on your car and if it still applies. You could also use a service like CARFAX and run your car’s vehicle identification number (VIN) through the site to check warranty status.

Bottom line:

Extended auto warranties can potentially save you a lot of money if an expensive component breaks or your car has recurring issues that need repair. On the flip side, you may end up paying for a warranty that you never end up using. Weigh your risks and evaluate your financial situation to determine if an extended warranty is right for you.

Additional Resources:

What is a Bumper-to-Bumper Warranty?

What is a CPO Warranty vs Extended Warranty for Cars?

Should I buy an Extended Warranty on a Car?

Certified Pre-Owned (CPO) vs Used - What's Better?

10 Best CPO Programs and Warranties for Used Cars

How Much Can You Negotiate on Certified Pre-Owned Cars?

Can You Buy CPO Cars from Independent Dealers?