What Is an Extended Auto Warranty?

Definition & Examples of an Extended Auto Warranty

Woman talking to a mechanic about her car
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An extended auto warranty is a service contract that extends the manufacturer's warranty coverage for the repair or replacement of parts. Buying one usually prolongs the duration of coverage provided by a vehicle’s factory warranty, but it's not always worth the price.

Learn about what an extended auto warranty covers, its pros and cons, and whether you need one.

What Is an Extended Auto Warranty?

An extended auto warranty is an optional vehicle service contract offered by manufacturers, dealerships, and independent providers at an extra cost beyond the purchase price to cover the price to repair or replace certain parts for a specified period or a certain number of miles beyond that covered by the manufacturer's warranty. Although buying an extended auto warranty is common when you buy a new car, you can usually obtain a service contract at any time before your warranty expires.

  • Alternate name: vehicle service contract

If you're purchasing an extended auto warranty on an existing vehicle, you can also get a service contract from your auto club (AAA for example).

How an Extended Auto Warranty Works

If you've ever owned a car, you know vehicle problems can sometimes be more complex than those covered by your manufacturer's warranty and can continue long after the manufacturer's warranty ends, which could put you on the hook to pay out of pocket for repairs or replacements. This is when an extended auto warranty comes in handy. These service contracts are designed to cover the costs of certain services beyond the scope of the manufacturer's warranty or after the warranty ends.

For example, let's say that you buy a new electric car that comes with a three-year manufacturer's warranty. Because the car has a complex electrical system, you also opt to purchase an extended auto warranty. In the third year of car ownership, the onboard computer in the car malfunctions, but your manufacturer's warranty doesn't cover repairs of this kind. Fortunately, your extended auto warranty does cover it, potentially avoiding out-of-pocket repair costs to the tune of several hundred dollars.

What Does an Extended Auto Warranty Cover?

The services that will be covered by the warranty, along with the length of the extended warranty in time or miles, vary widely.

However, service contracts generally only cover problems with electrical or mechanical parts—that too, those not covered by manufacturers' warranties. While service contracts may cover the engine and transmission, they typically exclude routine maintenance, such as oil changes and tire replacements. However, some extended auto warranties provide similar coverage as the manufacturer’s warranty.

Moreover, service contracts last anywhere from one to eight years or 12,000 to 125,000 miles. You should be able to choose the length of time or mileage that best fits your needs.

Even for covered parts repaired within the extended warranty period or mileage, a warranty may not cover your out-of-pocket costs in full. For example, limits may apply to the amount of towing expenses covered by the warranty, putting you on the hook for the rest. And some manufacturers use a depreciation factor whereby they only pay partial costs based on the number of miles you've incurred.

How Much Does an Extended Auto Warranty Cost?

Just like the amount of time and miles that will be covered, the cost of an extended warranty varies widely, anywhere from $1,000 to several thousand dollars up front, plus a per-visit or per-repair deductible that usually tops out at $100. That said, the price is negotiable, and zero-deductible plans are available.

When purchasing an extended warranty, remember that the price is negotiable. Try and get a better deal than what is originally offered before signing on the dotted line.

Pros and Cons of an Extended Auto Warranty

Pros
  • Savings on out-of-pocket repair costs

  • Robust, extended protection

  • Purchasing flexibility

Cons
  • Added expense

  • Use it or lose it

  • Only pays for covered expenses

Pros Explained

The advantages of an extended auto warranty include:

  • Savings on out-of-pocket repair costs: If you purchase an extended warranty, you won’t have to worry about unexpectedly needing to pay for a costly, covered repair, which can provide a sense of financial security.
  • Robust, extended protection: Service contracts typically cover costs not covered by factory warranties or outside the warranty period. If your otherwise reliable car suddenly has a hiccup a few years into ownership, you may be covered for the expense of repairing it.
  • Purchasing flexibility: As optional add-ons, service contracts don't have to be bought at the time you buy a car and generally aren't required even if you're getting a loan, which allows you the time to make a considered decision.

Cons Explained

The drawbacks of extended auto warranties are:

  • Added expense: The upfront and deductible costs described earlier can add up to a lot of money on top of insurance costs and the price of the vehicle itself, which may put you in a budget crunch.
  • Use it or lose it: Extended auto warranties acted like insurance policies in the sense that if you don’t make any repairs to your car, you don't get a tangible benefit from them, and in fact, lose money.
  • Only pays for covered expenses: The repairs that your car may eventually need may not be covered by the service contract or may already be covered by a manufacturer's warranty, and coverage limits may also apply.

Do I Need an Extended Auto Warranty?

If you’re purchasing a reliable vehicle and have an emergency fund and auto insurance coverage in place to cover basic repairs and physical damage, respectively, an extended auto warranty is most likely an unnecessary expense. A 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 paying more for it than they reap in savings.

However, if you're worried about your ability to pay for a repair that your extended warranty would cover, it also might make sense to buy it. Moreover, an extended warranty is sometimes a good bet for used cars: If you have a used car or plan to buy one that's no longer covered by its factory warranty, a service contract may help you reduce your out-of-pocket costs. Similarly, if you're unsure of the dependability of an existing vehicle or a new one of a make and model with a less-than-stellar reputation, an extended warranty might pay off.

How to Get an Extended Auto Warranty

If you end up purchasing an extended warranty, shop around for a manufacturer, dealership, or reputable independent provider that offers extended auto warranties.

Carefully review potential service contracts to ensure you understand:

  • Upfront costs and deductibles (which can be negotiated)
  • Covered and uncovered repairs and services, including whether the coverage overlaps with your factory warranty
  • The warranty coverage period or mileage covered

Remember that service contracts are optional, even if you plan to obtain auto financing. If a provider indicates that the contract is required, ask them to show you where in the contract the requirement exists; if it's not present, you're not obliged to buy it.

Alternatives to an Extended Auto Warranty

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

If you want enhanced coverage of repairs, also consider Mechanical Breakdown Insurance (MBI), a type of insurance you obtain from your car insurer to cover and may pay for repairs of parts not covered by extended auto warranties depending on the insurer. As these policies and their costs are regulated by the government, they often provide greater consumer protections and in some cases savings over extended warranties.

Key Takeaways

  • An extended auto warranty is a service contract that covers car repairs beyond the time period of a manufacturer's warranty.
  • These warranties typically cover the costs to repair or replace electrical or mechanical problems not covered by manufacturers' warranties.
  • Such warranties can last anywhere from one to eight years, with upfront costs starting at $1,000, and per-repair deductibles reaching as high as $100.
  • They're not as valuable if you have a reliable car, have car insurance, and have an emergency fund to cover the occasional repair. But they can still provide benefits to those with used or unreliable cars or who expect their repair costs to be unmanageable.
  • Shopping around for warranties and negotiating prices can help you get the best deal on one that provides value.

Article Sources

  1. Consumer Financial Protection Bureau. "What Is an Extended Warranty or Vehicle Service Contract?" Accessed Oct. 6, 2020.

  2. Consumer Financial Protection Bureau. "What Is the Difference Between a Manufacturer’s Warranty and an Extended Vehicle Warranty or Service Contract?" Accessed Oct. 6, 2020.

  3. Kenan-Flagler Business School. "Might I Interest You in an Extended Warranty?" Pages 11–12. Accessed Oct. 6, 2020.

  4. Federal Trade Commission. "Auto Service Contracts and Warranties," Accessed Oct. 6, 2020.

  5. Endurance Warranty. "How to Get the Lowest Extended Car Warranty Deductible." Accessed Oct. 6, 2020.

  6. Consumer Financial Protection Bureau. "Am I Required To Purchase an Extended Warranty or Guaranteed Auto Protection (GAP) Insurance From a Lender or Dealer To Get an Auto Loan?" Accessed Oct. 6, 2020.

  7. Consumer Reports. "Extended Car Warranties: An Expensive Gamble," Accessed Oct. 6, 2020.

  8. California Department of Insurance. "Guide to Automobile Service Contracts, Extended Warranties and Other Repair Agreements." Accessed Oct. 6, 2020.