In a NutshellAn extended car warranty may save you some money if your car needs repairs covered under the plan. To decide if one is right for you, weigh the cost of the warranty against the likelihood you’ll need to use it and your ability to pay for repairs without a warranty.
An extended car warranty may help cover the cost of certain repairs to your vehicle when the manufacturer’s warranty expires, but they’re not for everyone.
While it may sound like a good idea in theory, extended warranties often come with a high price tag and don’t necessarily cover everything that could go wrong.
Plus, many people who buy extended warranties never use them. In that case, an extended warranty becomes a cost with no financial return. According to a Consumer Reports survey, 55% of respondents who bought an extended warranty didn’t use it and only a quarter of survey participants said they’d buy one again.
And the cost for repairs among respondents who used their warranty was typically less than the cost of the warranty.
Instead of purchasing an extended warranty, it may make more sense to set aside the money you’d spend on it — and use the funds instead for needed repairs.
But before you decide whether an extended warranty is right for you, there are some things you should know — like how an extended car warranty works, how much it costs, and the pros and cons of getting one. And while we’ll refer to this as an extended warranty as it’s a commonly used term, this is not a warranty as defined by federal law and doesn’t come with the consumer protections that other warranties do.
- What is an extended car warranty?
- What do extended car warranties cover?
- How much do extended car warranties cost?
- Should you buy an extended car warranty on a new or used car?
- Are extended car warranties worth the money?
What is an extended car warranty?
An extended warranty — also known as a vehicle service contract — is an optional plan you can buy to help you pay for the cost of certain repairs your vehicle may need while you own it. It usually begins when the manufacturer’s warranty expires, but sometimes the two overlap.
But an extended warranty doesn’t cover everything.
What do extended car warranties cover?
“Most warranties you purchase do not cover the same amount of parts that the original factory warranty [covers], so you have to be careful as to … the level of coverage it provides,” says Steve Roberts, auto buying concierge at Ardent Credit Union.
Extended warranties usually don’t cover routine maintenance, either — things like oil changes, new tires, new brakes and more. Roadside assistance is typically a separate purchase as well.
To find out for sure what an extended warranty does and doesn’t cover, read the agreement’s fine print carefully.
Some other types of warranties include:
- Bumper-to-bumper warranties. These cover a wide range of manufacturing and design issues — including most major vehicle systems.
- Powertrain warranties cover all the parts of the vehicle that keep the car moving, such as the engine, transmission, drive axles and a few other parts.
How much do extended car warranties cost?
When you buy a car from a dealer, they’ll likely ask if you want to purchase an extended warranty to go with it. But much like the financing they offer, dealerships tend to mark up the cost of extended warranties to make a profit.
If you’re serious about purchasing one, consider negotiating with the dealer to get the price down or check out some independent providers.
Coverage options vary widely, and the cost you’ll pay varies based on what the plan covers and the make and model of your car. The upfront cost of the warranty can range from $1,000 to $3,000 or more. Plus, if you roll the cost of the warranty into your auto loan, you’ll pay interest — and potentially fees — on it.
You may also be required to pay a deductible. Deductibles are usually charged in one of two ways — per repair or per warranty service visit. It’s important to find out how deductibles work for your plan, because if a problem can’t be fixed in a single trip to the repair shop, you may end up paying multiple deductibles for one repair.
You may have to follow all the recommendations outlined in the warranty contract, such as routine oil changes, or your contract may be voided. Keeping detailed receipts for all repair work and maintenance is a good idea.
Should you buy an extended car warranty on a new or used car?
When you buy a new car, you probably won’t need to use an extended warranty right away because the manufacturer warranty — which is typically included in the price of the car — covers the cost of most repairs for the first few years you own the car.
But if you buy a used car from the dealer, it may not be covered under the manufacturer’s warranty. To find out, look for the Buyer’s Guide on the car window. It should let you know whether the car is being sold with a warranty. If it is, you may need to pay a fee to have it transferred to you.
If you’re buying a car that’s no longer covered by the manufacturer warranty or you want additional coverage after it expires, you may buy an extended warranty for an extra fee.
How long does the manufacturer’s warranty last?
The length of the warranty varies by manufacturer, but many offer bumper-to-bumper warranties for three years or 36,000 miles, whichever comes first. Powertrain warranties may last for up to 60 months or 60,000 miles.
Are extended car warranties worth the money?
It may be tempting to purchase an extended warranty plan to protect against unexpected repair costs. But before you do, consider both the pros and the cons.
Pros of an extended warranty
The biggest benefit of an extended warranty is that it can save you money if your car needs a costly repair that’s covered under your contract. Instead of paying the entire bill out of pocket, you’d only be responsible for covering the deductible (if you have one) — and then the warranty provider would pay for the rest, so long as the issue is included in the service contract.
Having an extended warranty can also help provide peace of mind if worrying about how you’ll pay for a repair is something that will keep you up at night.
“[It’s] similar to your car insurance,” Roberts says. “We don’t like to pay for it, but we certainly appreciate it when we need it.”
Cons of an extended warranty
Before you decide if the cost is worth it, there are some disadvantages to consider, as well.
- Usage — Many people who purchase an extended car warranty never use it. And if they do, the cost of the repair is often less than the cost of the warranty.
- Overlap — If the coverage period of the extended warranty overlaps with the manufacturer’s warranty, you may pay for a warranty you’re already getting at no cost. And with a new car, the extended warranty likely won’t be in effect until the manufacturer’s warranty expires.
- Coverage — Extended warranties typically don’t cover everything that might go wrong with your car. Read the fine print to find out what it does and doesn’t cover, so you’re not surprised by a repair bill you thought would be paid for under the warranty.
- Service requirements — You may only be allowed to have your car fixed at certain repair facilities.
- Depreciation clauses — Some extended warranties may only pay for a portion of the cost to repair or replace parts that need to be fixed, based on the car’s mileage.
- Reliability — Under most extended warranties, either the dealer, manufacturer or an independent third party is responsible for paying for repairs. If the entity that’s supposed to pay the bills goes out of business, you may be stuck with a warranty you can’t use.
When extended warranties are worth the cost
Extended warranties may be worth the cost if you’re buying a used car that isn’t under any kind of warranty and has a history of repair issues. It might be a good idea to get a free Carfax report to assess the vehicle’s history and then get an extended warranty that specifically covers your car’s past issues.
Carefully consider the cost of the warranty, your risk tolerance, financial situation and your vehicle’s reliability before buying an extended warranty.
An extended warranty could add thousands of dollars to the purchase of a car. This may not seem like much if you’re financing it and rolling the cost of the warranty into your monthly payment. But it still can be a significant amount of money, even if you’re not paying it all upfront.
If you’re buying a vehicle with a reliable track record, it might make sense to skip the warranty. Instead, consider setting aside the money you’d spend on it, and save for that rainy day when something could go wrong. If you don’t end up needing the money for repairs, you can keep saving it or use it for something else.
Ultimately, it’s up to you to decide whether the peace of mind an extended warranty can provide is worth the price tag. If you do decide to purchase an extended warranty, be sure to do your homework, watch out for auto warranty scams and work with a reputable company.
homework, watch out for auto warranty scams and work with a reputable company.
FAQs about extended warranties
An extended car warranty could add thousands of dollars to a new-to-you car purchase, so whether it’s worth it depends on your unique situation. For a brand-new car that comes with a manufacturer’s warranty, an extended warranty might not make sense. But it could be a good choice if you’re buying a used car with a questionable vehicle history and want to offset the risk of big out-of-pocket expenses.
If you’ve recently bought a new car with a manufacturer’s warranty, buying an extended warranty could be a waste of money because the manufacturer’s warranty usually takes care of most car repairs for the first few years. Also, extended warranties don’t cover everything. Oil changes, new tires, new brakes and roadside assistance are not always covered.
A good extended warranty can help protect you against unexpected or expensive repairs if you’re currently unprotected by a manufacturer warranty. It’s important to know what your extended warranty may or may not cover, what parts are allowed under the warranty and where repairs can be done. Remember, not all repairs and maintenance are covered under most extended warranties, and the more coverage you have, the higher the cost will be.