Are Extended Car Warranties Worth It?

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.

Here’s a quick overview on when it is and isn’t worth it to buy an extended car warranty (we’ll break it down in more detail with caveats below):

When buying an extended car warranty makes sense

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.

You drive a less reliable car

This is perhaps the No. 1 determining factor for whether an extended warranty is worth the cost. If your vehicle is known for lasting 200,000 miles with basic maintenance, you probably don’t need an extended warranty. But if you buy from an automaker with a reported history of poor reliability, like Audi or Mercedes, an extended warranty might be a worthy investment, since these vehicles are more likely to suffer a mechanical breakdown.

You can’t afford a sudden repair bill

If a surprise $2,500 repair bill would be financially burdensome, it might make sense to start financing a $2,500 extended warranty now with monthly payments to protect yourself from a large bill at the repair shop. This provides financial protection for you and gives you peace of mind.

“Having a vehicle protection plan is very valuable when a problem arises. I might have some cash on hand today, but tomorrow I might have none. So if something goes wrong with the car, it's covered,” Herbert, a ConsumerAffairs reviewer in Texas, explained.

The warranty costs less than expected repairs

Think of it this way: If the cost of a plan is higher than the cost of repairs it covers, it doesn’t make much financial sense. Paying out of pocket for repairs would actually be cheaper.

How much you should expect to spend on repairs is obviously tied to your vehicle’s reliability. However, even reliable vehicles can be at risk of incurring massive repair bills, especially if they’re from a brand known for high repair costs.

Check out the table below to see how much you can expect to pay for major repairs.

Alternatively, you may want the extra protection just for the sake of better sleep and peace of mind.

You don’t mind paying for peace of mind

Here’s something to consider: If you spent $2,500 on a three-year plan and never wound up using it, would you regret it? If not, then the added peace of mind might be worth the cost on its own.

If you’re still struggling to decide, Christopher Lawrence, CEO and owner of AutoAcademics, an online automotive resource for consumers, offered some potential tiebreakers based on whether you’re buying new or used.

• For new cars, it could be worth it if the vehicle has no reliability history to research. “Extended warranties on a new car might be worth considering if the car is all-new with no previous versions sold or if it has an entirely new powertrain that has not been sold previously on the market, and if you plan on keeping the vehicle longer than the standard new car warranty.” Otherwise, an extended warranty on a new car is less likely to be worth the cost.
• For used cars, Lawrence said buying an extended warranty is more likely to be worth it if there are gaps in the vehicle’s Carfax report. “When buying used, I believe that an extended warranty can be helpful if you do not know the history of the car.” Otherwise, whether or not you should buy an extended warranty on a used car depends on the same reasons we described above.

When buying an extended car warranty doesn’t make sense

An extended auto warranty isn’t the right fit for every driver. In some cases, you’re better off keeping your money and paying for repairs as they come. Below are a few situations where buying extra coverage is less likely to pay off.

You plan to sell before factory warranty ends

If you expect to sell or trade in your vehicle before the manufacturer’s warranty expires, an extended warranty is usually unnecessary. Most factory warranties last three to five years, and any coverage you purchase beyond that point may never be used. While some extended warranties are transferable, the resale value bump is often minimal and may not justify the upfront cost.

You lease your vehicle

For leases, an extended auto warranty probably isn’t worth it, said Lawrence. “If you're just leasing the car, an extended warranty should not be necessary because most lease terms will end prior to the new car warranty expiring,” he told us.

You drive a highly reliable model

If your vehicle has a strong track record for reliability and relatively low repair costs, an extended warranty may not offer much value. Brands known for longevity and inexpensive repairs are less likely to experience major mechanical failures during the coverage period, making it cheaper to pay for occasional fixes out of pocket.

You can easily afford a $3,000 repair

Extended warranties are often most appealing to drivers who want protection from financial strain. If a large repair bill wouldn’t disrupt your budget, you may be better off skipping the warranty and setting aside money for future repairs instead. In that case, you avoid paying for coverage you may never use while keeping full control over how and where your money is spent.

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.

Extended warranty vs. repair savings fund: pros and cons

If you don’t opt for an extended warranty, you should have some savings to fall back on. Here are the benefits and drawbacks of each option.

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

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.

Extended warranty vs. major repair costs

Consider the following average costs when determining whether an extended warranty is right for you:

• Average extended warranty cost (3 years of coverage): Around $3,000
• Average major repair cost range: $2,500 to $5,000, depending on repair and vehicle type
• Break-even scenario: One major repair

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?