An extended car warranty is an optional policy that covers certain repairs beyond your original warranty. Though they are commonly called warranties, these policies are really vehicle service contracts offered by third parties — not manufacturers. Extended auto warranties provide added coverage that can save you money on repairs, but they don’t cover everything and aren’t always cheap. Given the significant investment involved, here are some things to consider before you decide whether or not to buy an extended auto warranty.
When an extended car warranty is worth it
An extended car warranty can pay for itself in one use if a major breakdown is covered by your policy. If you’re worried about a catastrophic malfunction or the expense required to fix it, an extended warranty may be worth the cost.
Offsetting the cost of major repairs is the core benefit of an extended auto warranty. Extended warranties often let you pay a smaller monthly fee over time instead of a large sum all at once if your car breaks down — so extended warranties are ideal for those who have a little extra cash each month but don’t have access to a large savings account or rainy day fund to cover a costly repair.
When an extended warranty isn’t worth it
There are a few downsides to extended car warranties worth mentioning. The first is the price. Your warranty can set you back anywhere from a few hundred dollars to more than a thousand dollars each year. If you don’t end up using your policy, that cost might sting.
The second is the coverage specific to each policy. The most important thing you can do before signing for an extended warranty is to read the contract and familiarize yourself with what you’re paying for. See what’s covered, what’s not and if there’s language in the contract that outlines exclusions for common parts and mechanical components.
Your coverage should include the components you’re most worried about, either because they’re expensive or just particularly likely to fail. If you’re not confident your extended warranty will cover the right components, it’s not worth it.
Pros and cons of extended car warranties
Most extended warranties provide coverage against breakdowns and malfunctions for three to five years. Before you commit to a vehicle service contract, it’s important to know both the positive and negative aspects of your choice.
Pros of an extended warranty
- Limiting out-of-pocket expenses: If your repair is covered, you may only have to pay your deductible. Your warranty takes care of the rest, up to your coverage limit.
- Flexible coverage: Most car warranty providers let you customize your coverage plan, allowing you to choose whatever suits your needs, vehicle and budget. This often ranges from minimal powertrain coverage to almost complete exclusionary coverage.
- Hassle-free repairs: Warranty providers usually only cover repairs by certain shops or garages. However, doing so often simplifies the claims process. When you go in for a repair at an authorized shop, many warranty companies pay the shop directly once they’ve confirmed your coverage.
- Specialty coverage and benefits: Some extended car warranty policies include 24/7 roadside assistance, rental car reimbursements and lodging coverage for when you’re stranded far from home.
- Ability to negotiate: You may not realize it, but you can negotiate the cost of your extended car warranty. Providers may offer multiple customization options, allowing you to create the right extended warranty policy for you.
- Stability: Knowing major expenses are covered is a big selling point for most individuals who buy an extended car warranty. Having an extended car warranty can protect your finances and make your vehicle repair costs more predictable.
Cons of an extended warranty
- Expense: You may actually end up paying for more warranty coverage than you would otherwise. A consumer survey showed that only 45% of extended warranties end up being used. For some people, the gamble isn’t worth the cost. Like with health or renters insurance, it’s hard to know when or if you’ll need the coverage.
- Confusing coverage: Studies show people have a hard time understanding what’s covered by their existing manufacturer’s warranty, so knowing what kind of coverage you need from an extended warranty can be difficult as well. Although some appreciate the flexibility of extended warranty coverage, others might find it a deterrent. It’s also worth mentioning that most extended car warranties don’t cover preexisting conditions, so you may end up paying for such repairs out of your pocket. However, this is pretty standard with most warranty products.
- Large deductibles: Depending on your policy, your deductible could be anywhere from $50 to $200. The FTC warns that you want to pay attention to whether the price is per visit or per repair, though. For example, if you have a $100 deductible to take your car to the shop and it needs three repairs, you’ll pay $100 if your deductible is per visit. However, if it’s per repair, you’ll be stuck with a $300 bill.
Extended Car Warranty FAQ
- How much does an extended car warranty cost?
- An extended car warranty typically costs between $350 and $1,000 per year. This cost usually depends on your vehicle, coverage and policy length.
- Are extended car warranties and vehicle service contracts the same thing?
- Yes, what’s commonly referred to as an extended car warranty is actually a vehicle service contract by legal definition. These terms are often used interchangeably to talk about repair and replacement coverage after your manufacturer’s warranty runs out.
- Do extended warranties cost more for certain vehicles?
- Yes. While coverage costs don’t vary much between vehicle types (sedans versus trucks), they do vary based on vehicle specifics. For example, older cars or cars with higher mileages tend to require more expensive warranties because the likelihood of necessary repairs is higher. Likewise, if you have a car that needs expensive repairs, as with an exotic vehicle, your coverage should be more expensive.
- Can you negotiate the price of an extended car warranty?
- Sometimes. Many dealerships make quite a bit of their money selling additional items like extended warranties, meaning there’s a decent markup between the wholesale value of the policy and what it actually costs.
Comparing costs from other dealers can give you a better idea of what the average price of an extended warranty is and can help you determine whether or not you’re getting a good deal. Plus, letting a dealership know you’re comparing options usually results in better negotiation results. You can also go directly to the source and purchase from the vehicle service contract provider instead of through a car dealer.
New versus used cars: Is extended coverage worth it?
Extended auto warranties have worthwhile benefits whether you’re buying a new or used vehicle. However, the age of your vehicle does impact the relevant factors in making a smart purchase decision.
Should I buy an extended warranty on a new car?
New cars come with manufacturers’ warranties that cover most repairs in the initial years of ownership. However, you may wish to extend or complement that warranty with a third-party vehicle service contract.
Extending a new car warranty is common among people who regularly find themselves utilizing their existing warranties, especially if they intend to keep their cars for a long time. New cars generally need fewer repairs, so their coverage is cheaper too.
Manufacturers’ warranties also don’t cover everything. Some owners seek out “wrap” plans to turn limited manufacturers’ warranties into comprehensive coverage.
If you like to change cars often, buying an extended warranty for your new car may not make sense. However, if you do plan to keep the car beyond the original warranty period, consider buying an extended warranty. Don’t feel pressured to do this upfront, though. Drive your new car for a while and make sure you like it — you can add an extended warranty later.
Should I buy an extended warranty on a used car?
Extended warranties tend to be more popular for used vehicles whose original warranties have expired. Used cars are more prone to breaking down, potentially making extended warranties more useful. If you find yourself frequently heading to the garage for repairs, a vehicle service contract may save you money.
The key is to weigh your potential savings versus your expenses. Warranty providers usually don’t cover preexisting conditions, and they may charge extra for vehicles known to have certain problems. This is one reason it’s important to shop around for the right deal.
Extended auto warranties are also a good idea if you’re getting ready to sell your vehicle. Warranty coverage is usually a perk for other used car buyers as long as the policy is transferable.
Bottom line: Should I get an extended car warranty?
If you want to lower the likelihood of paying for expensive auto repairs, a third-party car warranty is a good option. The financial protection and peace of mind an extended warranty offers are often enough to justify the cost. An extended auto warranty might not be worth it if you rarely drive or can’t afford the premiums, though.
When considering whether or not an extended car warranty is worth the expense, think about the amount of money you've spent on out-of-warranty repairs for vehicles you've owned in the past. Compare that to the total price of an extended car warranty, minus any additional benefits like roadside assistance or rental car reimbursement. If you’re unsure you have enough cash set aside to pay for big repairs out of pocket, an extended warranty could be right for you.
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