Should I buy an extended auto warranty on a used car?
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With a new car, the manufacturer provides a warranty that covers the vehicle for a set number of miles or years — whichever comes first. While buying a used car can be a money-saving move, potentially high repair costs are a valid concern. Extended auto warranties may help reduce those costs.
Buying an extended auto warranty for a used car
There’s no one-size-fits-all answer to whether you should buy an extended car warranty with your used vehicle purchase, but there are some factors to consider when making your decision.
Does the vehicle come with a warranty?
Many used cars come with warranties. The previous owner may have purchased a transferable extended warranty, or the manufacturer may provide an extended warranty as part of a vehicle's certified pre-owned designation. If the car has low mileage, it may still have some of the factory warranty remaining. The dealership may also offer a warranty on a used car.
Before you buy an extended warranty for a used car, find out if it already has any warranty coverage. You may want to buy additional coverage even if it has a warranty (for instance, purchasing a wrap warranty to complement a powertrain warranty).
What does the warranty cover?
Before you purchase an extended warranty for your used car, check to make sure the warranty coverage includes any known issues specific to the year, make and model of your vehicle. Look online to see what repairs are commonly needed for your car, and try to approximate the costs of these repairs so you can compare those costs to the price of a warranty.
Certified pre-owned vehicles may come with a warranty. Be sure to ask the dealer.
How long do you plan to drive the car?
If you plan to drive the car until it's time to tow it to a junkyard, an extended warranty may make sense and extend the life of your vehicle. However, if you just want the car for a few years or are in a hurry to upgrade as soon as you can afford something nicer or newer, purchasing an extended warranty may not be worth the money.
Who is selling the warranty?
If you buy your car from a dealership, you may be faced with a decision about whether to add the extended car warranty cost to your total loan amount. However, adding the cost to your auto loan requires you to pay interest on the extended warranty.
You may get a better deal and more flexible rules about where you can get repair work done if you comparison shop for an extended warranty from third-party providers.
Do you keep a rainy day fund?
If you have an emergency fund and enough income to replenish it shortly after a financial setback, spending money on an extended warranty may not be the smartest financial decision.
Even if you don't have a rainy day fund, if you have enough wiggle room in your budget to set aside an extra $50 to $100 each month to pay for surprise repairs, you may be better off saving the money instead of purchasing an extended warranty.
Are you likely to use the coverage?
Even if you have great extended car warranty coverage, the statistical likelihood that you'll use it can't be ignored.
Before you make a purchase, look closely at the systems and parts that are covered. Make sure you understand the deductible and claim rules, and do some math. If your warranty has a $200 deductible and it costs $2,500 over the course of two years, your car would probably have to break down multiple times and require expensive repairs for you to break even.
Even if your car required major repairs costing $600 four times over two years, you'd pay more for your coverage than you would have if you paid 100% of the repair bills out of pocket.
Can you purchase an extended auto warranty later?
You don’t need to purchase an extended auto warranty at the same time as your used car. You can always purchase an extended auto warranty after you've researched your options to find warranty coverage that fits your budget and is appropriate for your vehicle.
When you wait to purchase an extended car warranty, you can avoid paying interest on the price of the warranty since it won't be rolled into your auto loan.
Many auto warranty companies have restrictions on the age, make, model and miles of the vehicles they cover, but so do dealership warranties.
Also, the dealership where you buy your car may have a contract with a third-party warranty provider that lets it mark up the price of the coverage, so you might not get the most competitive pricing unless you shop around.
Pros and cons of extended auto warranties for used cars
Buying an extended auto warranty for a used car can be a good way to protect yourself against paying for expensive repairs, but it’s not the right choice for everyone. Before purchasing one, consider the pros and cons and whether it makes sense for you.
- May save money on costly repairs
- Multiple plan options
- Visit any repair shop
- Transferable and cancelable
- You may never use it
- Limits and exclusions in the fine print
- Doesn’t cover regular maintenance
- Waiting period
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