What Is an Extended Auto Warranty?

Is it worth the cost?

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If you are in the market for a new or used vehicle, you might be thinking about purchasing an extended warranty. But what does it cover, and is the investment worth it? 

An extended warranty is a hard term to define, as it’s a catch-all term for a service contract that extends warranty coverage to repair or replace defects on your new or newly purchased car. Buying one offers extra peace of mind for buyers and usually extends the time of coverage provided by a vehicle’s factory warranty.

An extended warranty can be purchased through a variety of places, from the auto dealership to auto clubs like AAA or your insurance company.

What Does an Extended Warranty Cover?

The length of the extended warranty, whether in time or miles, and the repairs that will be covered by the warranty, vary widely. Some may offer comprehensive coverage for everything that could go wrong with your vehicle, while others may only include powertrain (parts that power the engine and wheels) or specific parts.

Warranties will also specify whether you can use OEM or aftermarket parts for repairs, and some will determine which auto repair shops are covered as well. Often, policies range in length from three to five years or might specify a range of miles driven, such as 60,000 miles. You should be able to choose the length of time or miles driven that best fits your needs.

Make sure you read the fine print of the policy and ask as many questions as you can before deciding to purchase. 

How Much Does It Cost?

Just like the miles and the amount of time that will be covered, the cost of an extended warranty varies widely. It can cost from $1,000 to several thousand dollars. According to a survey by Consumer Reports, you can expect to pay about $1,200 for an extended warranty, depending on your vehicle’s make and model, and where you buy the policy. A warranty for a more expensive model may cost more.

If you do want to purchase an extended warranty, remember that the price is always negotiable. Make sure you try and get a better deal than what is originally offered before signing on the dotted line.

Pros & Cons of an Extended Car Warranty

Pros

  • Reduced worry

  • A good bet for unreliable cars

Cons

  • An added expense

  • Use it or lose it

Reduced Worry

If you purchase an extended warranty, you won’t have to worry about unexpectedly needing to pay for a covered, costly repair. 

A Good Bet for Unreliable Cars

Do you have your heart set on purchasing a make and model of car known for a less-than-stellar record of reliability? If so, it might make financial sense to buy an extended warranty.

An Added Expense

The median cost of an extended warranty is $1,200. That’s a lot of money on top of insurance and the price of the vehicle.

Use It or Lose It

If you don’t make any repairs to your car, the money you paid for the extended warranty is wasted. The Consumer Reports survey found that more than half of individuals who purchase an extended warranty never use it. And those who do use it end up needing a repair that costs much less than the warranty does. 

Should I Purchase One?

If you’re purchasing a reliable vehicle and have an emergency fund in place to cover basic repairs, it is most likely an unnecessary expense. You should also have full coverage auto insurance to protect against physical damage due to an accident or fire, theft, vandalism, storm damage, or hitting an animal.

Sometimes peace of mind is worth the cost. If you are unsure of the dependability of the vehicle, then an extended warranty might pay off. If you are worried about your ability to pay for a repair that your extended warranty would cover, it also might make sense to buy it.

If you do end up purchasing an extended warranty, make sure you do so through your auto dealership or a reputable third party so that you can avoid an extended warranty scam.

Alternatives to Consider

The best thing you can do if you want to avoid spending the extra money on an extended warranty is to shop for your next vehicle with reliability in mind. Do the work to properly maintain the car once you drive it off the lot. A little bit of advanced research and maintenance can go a long way. 

Some financial experts recommend setting aside an emergency fund to be used for car repairs, rather than purchasing an extended warranty. That way, if you do need a repair, you’ll have the means to pay for it. And if you don’t end up needing the money to pay for a repair, you’ll still have it to spend on whatever you please. 

Article Sources

  1. Federal Trade Commission. "Auto Service Contracts and Warranties," Accessed Nov. 25, 2019.

  2. Consumer Reports. "Extended Car Warranties: An Expensive Gamble," Accessed Nov. 25, 2019.