Are Extended Car Warranties Worth It?

What does an extended warranty cover?

An extended warranty covers the cost of repairs of systems and components that fail due to manufacturing or material defects. Repairs are only covered when they happen under normal circumstances. Issues due to outside causes, such as using your vehicle improperly or damage from a collision, aren’t covered by an extended warranty.

Extended auto warranty companies typically offer multiple levels of coverage. As you’d expect, the more coverage a plan provides, the more it costs. The most common types of warranties include the following:

• Bumper-to-bumper: Also known as exclusionary plans, bumper-to-bumper plans are the most comprehensive warranties available. These plans cover nearly everything in your vehicle, with the exception of a few exclusions listed in the contract.
• Powertrain: Like powertrain coverage in a new vehicle's factory warranty, these plans cover the basic components that are vital to the functioning of your car. This typically includes much of your engine, transmission and drive axle(s). Many providers offer “Powertrain Plus” plans that cover a few more components, like your air conditioning and electrical system, in addition to the standard powertrain coverage.
• Drivetrain: Typically, this is the most basic level of coverage available. Drivetrain-only plans cover your driveshaft, axle shafts, transmission and wheels.
• Wrap: You can also find “wrap” coverage that extends your factory bumper-to-bumper coverage if it ends before other components of your manufacturer's warranty.
• Corrosion: Some providers offer an extended warranty plan that covers damage caused by rust and other forms of corrosion.

What isn’t covered by an extended car warranty?

For all the systems and components an extended warranty can cover, there are also a few things even the highest level of coverage won’t pay for. These exclusions are usually listed in the fine print of your contract. They often include:

• Routine maintenance services, like oil changes and tire rotations
• Wear-and-tear items, like brake pads and windshield wipers
• Damage covered by your insurance company (e.g., collision damage)
• Breakdowns caused by improper usage of your vehicle or unapproved accessories

Pros and cons of extended warranties

There are many advantages of buying an extended warranty for your car, but it’s also important to consider the potential downsides.

Pros of an extended car warranty

• Protection against expensive repairs: The main purpose of an extended warranty is to cover surprise repair bills so you don’t have to come up with thousands of dollars to repair your engine, transmission, drive axles or other vital components at a moment’s notice.
• Valuable secondary benefits, like roadside assistance: Extended warranties often come with other perks. Three years of roadside assistance and just one emergency tow could cost you $300-plus out of pocket. With most extended warranties, these perks are included.
• Peace of mind: Having extended warranty coverage means you don't have to worry about how you’ll pay if your vehicle unexpectedly breaks down.

Cons of an extended car warranty

• Cost of coverage could exceed repair costs: Regardless of how you break it up, the cost of an extended warranty can be quite high — around $1,000 per year of coverage — depending on your vehicle’s make, model and age. Plus, you may never end up using your warranty, making that money a waste.
• Nonexclusionary plans are generally of poor value: In our experience, while you may save 20% by purchasing a Gold/Silver plan, your parts coverage will drop by 80%. “We don’t even sell Gold plans anymore since they result in so much customer disappointment,” one Lexus dealership rep told us.
• Bumper-to-bumper plans still have exclusions: Even the most robust extended warranty on the market won’t cover preexisting conditions, weather- or accident-related damage, abuse, neglect, aftermarket parts or failures caused by aftermarket parts, or lack of maintenance. That means you may still have to pay for repairs out of pocket.

What to consider when buying an extended warranty

Determining the value to you of an extended car warranty comes down to more than just cost. Here are a few other important things to take into consideration:

• Vehicle reliability: If you own a car known for its reliability, such as a Honda or Toyota, you’re less likely to use the coverage you pay for. Vehicles from brands that have a reputation for being less reliable, such as Audi and BMW, are more likely to need repairs that would be covered under your warranty contract.
• Vehicle age: Older cars are more likely to break down, meaning you're more likely to use your extended warranty coverage on one. However, the cost of a plan tends to go up as cars get older, which also factors into the value of coverage.
• Repair costs: An extended warranty is also more likely to be worth the money you pay for it when the average repair costs for your vehicle are higher. Luxury and exotic cars tend to have specialized parts and premium labor costs that make even small repairs expensive.
• Financial preferences: How you like to deal with money is also a value factor. If you don’t tend to have cash on hand and instead prefer to make monthly payments to protect against huge repair bills, an extended warranty can provide that security for you.

When is an extended car warranty worth the cost?

An extended auto warranty isn’t always the right choice for everyone, but there are many situations in which the coverage is worth every penny you spend on it. There is an important distinction between value and cost to consider: Just because a plan is cheap doesn’t mean it provides value to you, and vice versa.

Extended warranty coverage is worth it for many — but not everyone. How much you get out of your plan depends on the cost, your car’s reliability and your financial preferences. Carefully consider each of these aspects and shop around for the coverage (and price) you want.

Generally speaking, an extended auto warranty is more likely to be worth it if any of the following apply to you:

• You drive a used vehicle that is less reliable than the average vehicle.
• You can’t afford a big, unexpected repair bill.
• The cost of your warranty is less than you expect to spend on the repairs it would cover.
• You don’t mind paying a few thousand dollars for extra peace of mind.

Let’s break these down even further to help you make an informed choice.

How to choose the best extended car warranty

To choose the best extended auto warranty for your needs, it’s important to weigh the cost of coverage against how likely you are to use that coverage and the average repair costs for your vehicle. You’ll also want to consider whether you have the reserve funds to cover several thousand dollars’ worth of repairs at a moment’s notice and whether making regular monthly payments for financial protection is preferable instead.

Like with any major purchase, it’s important to make these considerations carefully. It’s also a good idea to get quotes from a few different providers and compare them to find the best rates. The coverage tends to be similar from one provider to the next, but prices can vary significantly.

Before we wrap things up, here are a few tips to help you find the right extended auto warranty for your situation:

• Know your car: Does the CVT transmission in your Nissan Sentra often have issues around 50,000 to 100,000 miles? What are the most common issues (and repair costs) in your 2019 Chevy Tahoe? Researching sites like Edmunds and RepairPal can help you know what to expect and how much coverage to purchase.
• Start with the top-rated warranty companies: We’ve compiled our picks for the best extended car warranty companies based on coverage options, customer reviews and other factors to help you get a head start on your search.
• Get multiple quotes: You can often get the same bumper-to-bumper protection for less if you shop around. In our experience, one dealer may charge $500 less than another down the street, and a third-party company may charge $1,000 less than both of them.
• Read consumer reviews that mention claims: When browsing customer reviews for extended warranty companies, pay careful attention to reviews by consumers who actually filed claims. These tend to reveal the most information about a company’s willingness to pay out.

» READ MORE: Where can you use an extended car warranty?