What is a dealership warranty?

Many car dealers sell extended warranty coverage — but they’re not your only option

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Buying an extra warranty at the car dealership might feel like getting popcorn at a movie theater or a hot dog at a baseball field.You’re already spending money — what’s a little more?

But dealership warranties cost much more than popcorn or a hot dog, and they require extra care and caution before buying because they may be just as overpriced.

So what exactly is a “dealership warranty”? What do they cover? How can you tell when a dealer is ripping you off or giving you a great deal? And do you really have to buy an extended warranty from the dealer in the first place?

Read on to find out.

Key insights

A “dealership warranty” is any kind of extended auto warranty you get from a car dealer.

Jump to insight

When a dealer offers you an extended warranty, it’s best to read the contract carefully and take anything they say with a grain of salt.

Jump to insight

There aren’t many benefits to buying an extended warranty while you’re signing the paperwork for your car. Consider taking their best offer and comparing it to what you can get from other dealers and third-party providers.

Jump to insight

Dealership warranties explained

“Dealership warranty” is a generic term that can refer to any type of extended auto warranty you get from a car dealership. Broadly speaking, there are three types of extended auto warranties you could potentially get from the dealer, all of which could be considered “dealership warranties”:

  • Manufacturer extended warranties: These are extended auto warranties that are sold by the dealership and backed by the original equipment manufacturer (OEM) of the vehicle you’re buying. Examples include Toyota Extra Care, Kia Distinction and Porsche Vehicle Service Protection. In other words, these are the “official” extended warranties for your car.
When we say a warranty is “backed by” a company, like Toyota, it means that company is the one approving your claims and paying for repairs.
  • Third-party extended warranties: These are extended auto warranties that are sold by the dealer but backed by somebody other than your car’s OEM, like Zurich. “Dealers have various reasons for carrying both OEM and extended warranty options,” the finance manager at a Tennessee-based Acura dealer told us. “Oftentimes the third-party option is cheaper, more flexible or both.”
  • Complimentary extended warranties: Some dealers include complimentary extended warranties with select new and used cars. Stonecrest Honda in Georgia, for example, offers an unlimited-year/unlimited-mile powertrain warranty with all new and select, qualifying used vehicles.

Now that you know what a dealership warranty is, let’s discuss what they actually cover — and whether they’re worth the cost.

» MORE: What to know about manufacturers’ extended warranties

What do dealership warranties cover?

Because the three types of dealership warranties we mentioned above vary so much, they can cover as little as 50 parts for three months/3,000 miles or as many as 5,000 parts for 10 years/100,000 miles. It totally depends on which coverage plan you choose.

In general, though, there are three main types of extended auto warranty plans:

  • Powertrain plans cover roughly 50 parts inside your engine, transmission and drive axle(s). (Your vehicle’s powertrain more or less includes the parts necessary to make your car go.)
  • Silver/Gold plans typically cover around 200 to 500 parts, including your powertrain, electrical system, infotainment system and more.
  • Platinum plans, aka bumper-to-bumper warranties, cover the vast majority of the parts on the car — typically between 2,000 and 5,000 total, depending on the make and model. The most common exceptions are wear-and-tear items (like brake pads and wiper blades) and body panels.

While “Powertrain,” “Silver”/“Gold” and “Platinum” are pretty common labels for extended warranty plans, not every provider uses them. Endurance, for example, uses the names “Secure Plus,” “Superior” and “Supreme” to refer to its versions of these coverages.

If a car dealer presents you with an extended warranty, be sure to read the contract carefully and determine whether the plan offers basic powertrain coverage, true bumper-to-bumper coverage or something in between.

The bad news is that simply asking the dealer to explain your coverage isn’t a safe or reliable option. We have seen numerous reports from readers who feel that they were verbally misled or misinformed about their warranty terms, leading to confusion and disappointment later.

“I was told I was buying a 5-year warranty to start after the factory warranty of 1 year ran out,” said a reviewer from Canada. “What they say they actually sold me was a 2-year warranty added to the original 3-year factory warranty which was supposed to have added up to the total 5 years. … As if any person would pay $5,500. for an extra 2 years added on the factory 3 years warranty.”

“If you ever do think of purchasing any warranty on a vehicle again please read the fine print. Just don't go by the salesperson's pitch,” the reviewer added.

If you ever do think of purchasing any warranty on a vehicle again please read the fine print. Just don't go by the salesperson's pitch.”
— a dealership warranty reviewer

So, while it’s fine to ask the dealer basic questions about warranty coverage, you’ll want to verify that everything they said is true by reading the contract terms yourself.

“Some consumers may feel like they are scammed because the warranty or service contract does not cover everything,” wrote Allison Harrison, an attorney specializing in automotive law, “but the document they signed when they purchased the warranty/contract is very clear what they bought.”

On that note, let’s discuss what buying a dealership warranty looks like so you’re ready for the conversation when it pops up.

How to buy a dealership warranty

Buying a dealership warranty is usually the very last step in the process of buying a car.

Once you’re at the dealer and you’ve decided to purchase the car, the sales rep helping you will often escort you to an area of the dealership known as Finance and Insurance (F&I). There, a finance manager will likely ask you to sign tons of forms, try to sell you some accessories and then bring up the topic of extended warranties.

This is your chance to ask tons of questions, and again, verify the responses by digging through the contract. If the finance manager can’t provide a contract for you to review, simply decline the coverage. You never want to agree to an extended warranty without having read the contract terms in full.

At this point, you’re probably wondering if you can say “no” to an extended warranty for now and purchase one later once you’ve done your research. The answer is: yes. In fact, this is probably the best option almost all of the time since it gives you a chance to:

Don’t feel pressured into buying the warranty your dealership recommends.
  • Read the contract in full
  • Negotiate the price
  • Compare the price with other dealers and third-party providers
  • Determine what kind of parts coverage you really need for your vehicle
  • Determine how much warranty you can afford

The main disadvantage to saying “no” in the F&I office is that you may lose the chance to include the cost of the warranty in your auto loan. Even still, many extended auto warranty providers have their own financing or month-to-month payment options, so wrapping the cost of a dealer warranty into an auto loan — and paying interest on it — isn’t an ideal option to begin with.

Extended auto warranties are big profit-makers for dealerships, and as a result, many of them will still sell you a plan after you’ve walked out the door. So if you feel some sales pressure in the F&I office, know going in that there’s very little downside to just saying “no.”

Can you get a “dealership warranty” from somewhere other than the dealer?

The dealership is not the only place you can buy an extended warranty, and it may not even be the only place you can buy the exact warranty your dealer is offering you. (That’s another great reason to hold off on buying an extended auto warranty until after you’ve left the F&I office.)

Here’s a tip: Even if you want an OEM extended warranty, you don’t necessarily need to purchase it from the dealer that sold you the car. If Hyundai Dealer A offers you a seven-year/100,000-mile bumper-to-bumper plan for $2,500, you can call Hyundai Dealer B down the street and ask if they’ll sell you the same one for $2,200.

To be fair, some dealership warranties are indeed exclusive to dealers. You can only purchase OEM warranties from an authorized dealership, and any “free warranty with purchase” deal will obviously be exclusive to that specific dealer.

But the last form of dealership warranty — the third-party extended warranty — can usually be purchased separately either over the phone or entirely online.

Is a dealership warranty worth it?

There are two possible ways to interpret this question, so we’ll answer both:

1. Should you buy a warranty from the dealer – or somewhere else?

If you’re set on purchasing an extended auto warranty for your car, it’s best to consider the dealer’s offer as just one option. Try to negotiate a few hundred dollars off the asking price, and once you’ve reached their bottom number, simply thank them for the offer and say you’ll weigh it against other options.

Later, you can call the dealer down the street or any of our top picks for extended car warranty companies and simply ask what they’d charge for a similar coverage plan. That way, you can get a feel for what a reasonable price is and choose the provider that offers the best combination of coverage and cost.

2. Should you buy an extended auto warranty at all?

This is a big question that we’ve written multiple articles on, but in a nutshell, an extended auto warranty is more likely to be worth the cost if any of the following are true:

  • You drive a vehicle with a below-average reputation for reliability.
  • You plan to own your vehicle for several years after the factory warranty expires.
  • You don’t mind paying extra for added peace of mind.
  • You find a great deal on an extended auto warranty.

For a point of reference, the average cost of an extended auto warranty is about $1,000 per year of additional bumper-to-bumper coverage. So, if you find a plan for well below that, you’re probably getting a good deal.

» MORE: Pros and cons of extended auto warranties

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How do dealerships make money on extended warranties?

Dealers profit from the sale of extended auto warranties by heavily marking up the cost and pocketing the difference. According to various sources, the dealer markup on an extended warranty can range anywhere from 40% to 400%, meaning the dealer may purchase an OEM plan for $1,000 and then try to sell it to you for $5,000.

Such eye-watering markups are why it’s always a good idea to negotiate and collect quotes from different sources.

How does a dealership warranty work?

Let’s say you purchase a seven-year/100,000-mile Toyota Extra Care warranty. During year six, your transmission fails, so you tow the car to the dealership and request a warranty repair. The dealer then diagnoses the issue and files a claim on your behalf to Toyota, who then either approves or denies the claim based on whether or not the failed part is covered under your contract.

Who administers dealership warranties?

It depends. If you have an “official” automaker extended warranty (e.g., Audi Pure Protect), it’s administered by the automaker itself. If it’s an unofficial third-party option (e.g., CostGuard), it’s administered by a third-party company.

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