How do extended car warranties work?

What is an extended warranty?

As the name implies, an extended auto warranty can effectively “extend” the length of your factory warranty, adding additional years or miles of coverage to protect you from repair bills for longer.

It might seem strange that a company would offer to “extend” coverage beyond what your car’s own manufacturer guarantees. Why would a third-party company feel more confident than the people who built your car?

Because your extended warranty is an entirely new contract, you can sometimes get broader coverage than your original factory warranty offered.

For example, if the manufacturer only promises to cover defects for 36,000 miles, that’s because they’re only willing to guarantee their work for that long. Extended warranty companies are simply betting that major repairs won’t be common (and that what they pay out will cost less than what they collect in fees).

The reality is that an extended car warranty isn’t just an extension of the original manufacturer’s warranty. Instead, it’s a separate vehicle service contract designed to help cover the cost of certain repairs once your factory warranty runs out. It’s not that they know more about your car, just that they’re managing risk across many drivers.

Types of extended auto warranty coverage

Keep in mind that similar to factory warranties, extended warranties only cover factory defects. So, if your infotainment screen suddenly goes black or your transmission won’t shift, your warranty provider would likely pay to fix the problem, minus the cost of your deductible. There are two main types of contracts or coverage levels:

• Stated-component warranties list exactly which parts are covered.
• Exclusionary warranties cover everything except the parts listed in the contract.

However, any issues arising due to damage, neglect, abuse, misuse, aftermarket part interference, racing or off-road use generally won’t ever be covered. This means wear-and-tear or routine maintenance still isn’t covered, either.

Extended warranty costs

An extended car warranty typically costs between $1,400 and $4,000 per year of coverage. Car warranty costs depend on several factors, like the type of car (luxury or problem-prone models cost more), how many miles it has and the level of coverage you pick. Higher deductibles lower your plan price, while $0 deductibles raise it. Your driving habits, including annual mileage and whether you use your car for work, also affect what you’ll pay.

Now that we’ve established what an extended warranty actually does and how much it costs, we can get into how you actually go about using one, starting with when coverage begins. Unfortunately, that answer is more complicated than you might think.

When does an extended warranty start?

Extended auto warranty coverage is typically measured from one of two start dates:

• The in-service date is the date when your vehicle was sold to its first owner. If you’re not the first owner, you can check your vehicle’s in-service date by calling the dealership or checking the Carfax report.
• The warranty purchase date is when you purchased the extended warranty. (This is sometimes known as the contract effective date.)

Manufacturer vs. third-party warranties

Broadly speaking, most manufacturers’ extended warranties (like Honda Care or Audi Pure Protection) start from the in-service date. That means if you purchase a seven-year/100,000-mile Audi Pure Protection plan, your extended warranty will only provide an extra three years or 50,000 miles of coverage beyond your original four-year/50,000-mile factory warranty.

In contrast, most extended warranties from third-party companies (like Endurance or CarShield) start from the warranty purchase date. So, if you purchase a three-year plan from Endurance, you’re truly getting three extra years of coverage starting now.

Well, “now” in a figurative sense.

What to know about waiting periods

If you buy an extended warranty today, your coverage could begin as quickly as tomorrow morning. Other times, you might have a waiting period of up to 90 days, depending on your provider and the terms listed in your contract.

Waiting periods are a way of weeding out vehicles with preexisting conditions.

Most warranty providers, like CarShield, have standard waiting periods of 30 days and 1,000 miles. Some can stretch as long as 90 days. So, if you’re looking to close the gap between your factory warranty and your extended warranty, be sure to check your warranty agreement and time your purchase accordingly.

How to use an extended auto warranty

Extended auto warranties are a bit more nuanced than they might seem. Like auto insurance or health insurance, there’s a process you have to follow and understand to get things right and slash your bill. But, as long as you know what’s covered, know your waiting period and get your repairs pre-authorized, it should be smooth sailing.

Follow these steps to maximize the odds that your claim will be accepted and your repairs will go smoothly.

1. Call your warranty company. While you’re on the phone, you can ask about roadside assistance (if you need it and it’s included in your plan), whether or not your breakdown might be covered and preferred local mechanics (more on why that’s important in step five).
2. Get your vehicle to an authorized shop. Most third-party warranty companies will let you use your extended auto warranty at any repair shop with ASE-certified technicians. By contrast, most automaker-backed plans require you to go to the nearest licensed dealership.

   That said, manufacturers’ plans typically include free or subsidized towing to the nearest dealer, and they may even waive your deductible if you have repairs done at the same dealer where you bought the warranty (also known as a disappearing deductible).

3. Let the shop know that you have a warranty. This step is essential for two reasons:
   • Almost all warranty repairs must be pre-authorized by your warranty company. If you forget to mention your warranty, pay for the repairs out of pocket and then try to seek reimbursement from your warranty provider, you might be out of luck. Most providers will deny any claim for repairs that weren’t pre-approved
   • There’s a chance that the shop will not honor your warranty. If your preferred shop refuses to perform warranty work, your next best step might be to call your warranty provider back, let them know and ask for recommendations. “Some shops refuse to take any outside coverage because they want to be in charge of their own prices. There is a nationally recognized labor guide that tells repair facilities what to charge for what services and things like that,” a CarShield rep wrote in a response to Steve, a ConsumerAffairs reviewer from Virginia.
4. Wait for diagnosis, pre-authorization and repairs. The shop will diagnose your issue and send the diagnosis code(s) to your warranty provider for pre-authorization. Once it has pre-authorization, the shop will go ahead and complete the repairs.

   If your warranty provider denies the repairs, the shop will generally call you to ask how you’d like to proceed (i.e., pay for repairs out of pocket or open a dispute). Before you open a dispute, it might be worth double-checking if your part is covered under warranty (and if you have any ground to stand on).

   “A lot of the time, people think that the exhaust or batteries are covered. They’re not,” a Zeigler rep told us. If your warranty provider does pre-authorize the repairs, you’ll move on to step five.

5. Pick up your vehicle and pay your deductible. Once the repairs are complete, you simply pay your deductible and get your keys. The shop should never charge you more than your deductible amount, and if it does, you should call your warranty provider right away.

Pros and cons of extended warranties

Like any financial product, extended warranties come with advantages and drawbacks. Understanding these can help you decide whether one is right for your situation.