An extended car warranty is optional vehicle coverage that extends the life of a manufacturer’s warranty. Though these are commonly called warranties, they’re really vehicle service contracts offered by third parties — not the manufacturer. Extended auto warranties provide added coverage and can save you money on repairs, but they don’t cover everything and aren’t always cheap. Read on to learn more about this coverage, when it’s worth it and when it might not be.
Pros and cons of extended car warranties
As with any warranty or service contract, it’s up to you to determine if the pros outweigh the cons or vice versa. An extended warranty could be worth it if you plan on keeping your car for a long period of time, have a history of repairs that would’ve been covered under a service contract or aren’t prepared to pay for large repairs out of pocket. On the other hand, a warranty might not be worth it if you tend to trade your car in for a newer model every few years.
- Flexible coverage
- Hassle-free repairs
- Reduced out-of-pocket expenses
- Specialty coverage and benefits
- Peace of mind
- Added monthly expense
- Might be unnecessary coverage
- Confusing contracts
- Deductibles can be high
When an extended car warranty is worth it
An extended car warranty can pay for itself in one use if the breakdown is covered by your policy. Offsetting the cost of major repairs is the core benefit of an extended auto warranty. This lets you pay a smaller monthly fee over time instead of a large sum all at once if your car breaks down — so extended warranties are ideal for those who have a little extra cash each month but don’t have access to a large savings account or rainy day fund to cover a costly repair.
Pros of extended car warranties:
- Flexible coverage. Most car warranty companies let you choose or create a coverage plan that works best for your vehicle and budget. You can customize your plan to suit your needs, with options ranging from basic to full coverage.
- Hassle-free repairs. Most companies handle the claims process for you. When you go in for a repair at a licensed or covered shop, the mechanic contacts your warranty company to get the details of what’s covered and what’s not. This provides a relatively hands-off process so you don’t have to worry about paperwork.
- Out-of-pocket expense limits. You’ll only pay a small deductible when your car breaks down. Paying a $100 deductible gives you significant savings — according to AAA, the average car repair costs $500 to $600.
- Specialty coverage and benefits. Some extended car warranty policies include 24/7 roadside assistance, rental car benefits and lodging coverage for when you’re stranded far from home.
- Ability to negotiate. Unlike traditional insurance policies, you can negotiate extended car warranties. If you can’t find a policy in your price range or a plan that covers everything you need, try to negotiate. Companies want to sell you their coverage over competitors’, and you might be surprised by how much wiggle room they provide on cost and coverage.
- Peace of mind. There’s something to be said about financial peace of mind. Knowing major repairs and replacements are covered is a big selling point for most individuals who buy an extended car warranty. As vehicles get more complicated with advanced technologies, repairs only get more expensive — and budgeting for them becomes more cumbersome. Having an extended warranty in place can streamline your finances and make your vehicle repair costs more predictable.
When an extended warranty isn’t worth it
There are a few sticking points of extended car warranties worth mentioning. The first is the price. Depending on the warranty you select, it can set you back anywhere from a few hundred to more than a thousand dollars each year. If you don’t end up using your policy, that cost might sting.
The second is the coverage specific to each policy. The most important thing you can do before signing for an extended warranty is to read and familiarize yourself with what you’re paying for: what’s covered (and what’s not) and if there’s language in the contract that outlines several exclusions to coverage for common parts and mechanical components.
Cons of extended car warranties:
- Expensive protection. An extended car warranty can be expensive — these costs can run as high as $1,000, and some warranties are even pricier. Because an extended warranty is designed to help in the event something bad happens to your vehicle, you could potentially get similar peace of mind by spending the money on a more reliable vehicle instead.
- Might be unnecessary. A consumer survey showed only 45% of extended warranties end up being used. For some people, the gamble isn’t worth the high cost of the added coverage. Just as with insurance, it’s hard to know when or if you’ll need the coverage.
- Confusing coverage.Studies show people have a hard time understanding what’s covered by their existing manufacturer’s warranty, so knowing what kind of coverage you need from an extended warranty could be difficult. Although some appreciate the flexibility of extended warranty coverage, some might find it a deterrent.
- Large deductibles. Depending on your policy, your deductible could be anywhere from $50 to $200. What you want to pay attention to is whether the price is per visit or per repair, as the FTC warns. For example, if you have a $100 deductible to take your car to the shop and it needs three repairs, you’ll pay $100 if your deductible is per visit, but if it’s per repair you’ll be stuck with a $300 bill.
It’s also worth mentioning that an extended car warranty doesn’t pay for preexisting conditions, but this is pretty standard with most warranty products.
Extended Car Warranty FAQ
- How much does an extended car warranty cost?
- An extended car warranty typically costs between $350 and $1,000 per year. This cost can vary greatly depending on the type of vehicle, what’s covered and the length of the policy.
- Are extended car warranties and vehicle service contracts the same thing?
- These terms are often used interchangeably to talk about repair and replacement coverage after your manufacturer’s warranty runs out. However, a true warranty is provided by the vehicle’s manufacturer — what’s commonly referred to as an extended car warranty is actually a vehicle service contract by legal definition.
- Do extended warranties cost more for certain vehicles?
- Yes. While coverage cost doesn’t vary much between vehicle types (for instance, sedans versus trucks), it does vary based on vehicle specifics. For example, older cars or cars with higher mileage tend to require more expensive warranties because the likelihood of necessary repairs is higher. Likewise, if you have a car that needs specific and costly repairs, as with a foreign vehicle, your coverage will be more expensive.
- Can you negotiate the price of an extended car warranty?
- Sometimes. Many dealerships make quite a bit of their money selling additional items like extended warranties, meaning there’s a decent markup between the wholesale value of the policy and what it actually costs.
Comparing costs from other dealers can give you a better idea of what the average price of an extended warranty is and can help you determine whether or not you’re getting a good deal. Plus, letting a dealership know you’re comparing options usually results in better negotiation results. You can also go directly to the source and purchase from the vehicle service contract provider instead of through a car dealer.
New versus used cars: Is extended coverage worth it?
A new car comes with a manufacturer’s warranty that covers most repairs and replacements in the initial months or years of ownership. These are included in the price of the vehicle — ideally, a new vehicle shouldn’t need any repairs or replacements.
An extended car warranty is an optional piece of coverage that extends the life of a manufacturer’s warranty. It’s not technically a warranty — it’s a service contract between you and the seller. These are often sold with a vehicle purchase, especially with used cars, but they can be added at a later date.
Should I buy an extended warranty on a new car?
If you plan to keep your car for several years, you might want to consider purchasing an extended warranty after the manufacturer’s warranty expires. Don’t feel pressured to do this upfront, though. Drive your new car for a while and make sure you like it — you can add an extended warranty later if you choose.
Are extended warranties on used cars worth it?
Extended warranties tend to be more popular for those purchasing used vehicles when the manufacturer’s warranty has already expired. You’ll likely be able to purchase an extended warranty at the dealership and roll it into your financing, but you can also buy directly from an extended warranty contract provider. You don’t have to make a decision the day you purchase your vehicle, so don’t feel obligated to — even if the salesman insists it’s the best option.
Extended auto warranties are also a good idea if you’re getting ready to sell your vehicle — the coverage is usually a perk for buyers. Most auto protection plans are transferable.
Bottom line: Should I get an extended car warranty?
If you want additional auto coverage to lower the likelihood of costly repairs, a car warranty is a good option. The financial protection and peace of mind an extended warranty offers could be enough to make it worth it for some car owners. Standard extended warranty benefits include roadside assistance, rental car reimbursement and savings on repair and replacement costs. An extended auto warranty might not be worth it if you rarely drive or can’t afford the premiums.
When considering whether or not an extended car warranty is worth it, think about the amount of money you’ve spent on out-of-warranty repairs for vehicles you’ve owned in the past. Compare that to the total price of an extended car warranty. If you’re worried about having enough cash set aside to pay for big repairs out of pocket, an extended warranty could be right for you.
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