Should you get an extended warranty for your car?
Fact-checked with HomeInsurance.com
For most drivers, reliability is a top priority when it comes to looking for a new car. While the make and model represents a significant aspect of ensuring reliability, there are other ways to protect yourself in the event something goes wrong with your vehicle.
For many, that means purchasing an extended car warranty when they buy a car. But is car warranty worth it? In this report, we’ll take a hard look at car warranties: what they are, what they cover, and whether it’s worth it for you.
What is an extended car warranty?
An extended warranty isn’t actually a warranty as we usually think of them. It’s an extended vehicle service contract that pays for repairs after the manufacturer’s warranty on your car expires. You can get an extended car warranty from the dealer or a third-party supplier.
While car warranty insurance doesn’t exist, an extended car warranty works similarly to insurance coverage, in which a deductible usually applies prior to repairing your vehicle.
What the warranty covers varies from company to company, but it generally should cover all the major systems of the car. Some (but not all) also cover tires, and they rarely cover regular maintenance, such as oil changes.
This car warranty insurance differs from your manufacturer’s warranty, which comes standard with each new car. A manufacturer warranty usually offers comprehensive coverage for three years or more. In addition, powertrain warranties may last even longer — up to five years in some cases.
What do extended car warranties cover?
It’s simpler to learn what extended car warranties don’t cover. Although each warranty will be different, in general, it doesn’t cover the results of normal wear-and-tear. So, for example, if you need new brake pads after four years or so, you may be on your own.
Routine maintenance is also not covered, and neither is roadside assistance — although some dealers offer this perk as a separate purchase. Tires are covered in some, but not all, extended car warranties. This is one case where reading the fine print is important: you’ll want to base your decision on exactly what is covered.
In general, you’ll be covered for unexpected, unpredictable issues that leave you stranded. So, for an example, if your car’s camshaft suddenly cracks unexpectedly and the manufacturer’s warranty expired six months ago, you could draw on your extended car warranty to get it fixed — which might be an expensive repair.
Why to get an extended car warranty
It’s easy to get talked into purchasing an extended car warranty. If you just agreed to $30,000 or $40,000 on a brand new car, another couple thousand for a service contract may not seem like much.
You may opt for the best extended car warranty because it will provide added protection for your vehicle for unexpected, costly repairs. A catastrophic repair would set you back only the amount of your deductible — provided the issue falls within the range of what is covered in the warranty. For this reason, a car warranty may be a good idea.
Although you could technically save money in the long run with a car warranty, you might also never have to use the extended warranty, which could render the investment unnecessary. Especially if you purchase a new car that runs well and doesn’t historically experience unexpected mechanical failures. The restrictions on the warranty could also make it not as useful as it could be.
Pros and cons of extended warranties
If you are concerned that a significant car breakdown might devastate your finances, an extended warranty might even out the risk and provide you with a financial fallback. If you are able to make use of it more than once, it may save you even more money in the long run — especially if you tend to drive out the mileage on a car. To simplify payments, you can include the cost of the warranty in your car loan, although you’ll also end up paying interest on that amount.
Extended car warranties can be an added expense at a time when you’ve just invested a lot of money in a car. They can’t be used for every repair, and even for those that do apply, you typically need to pay a deductible before the warranty kicks in. Extended car warranties usually can’t be used for normal wear and tear, and as your car ages, you may not be able to get as much back as when it was new since depreciation can be factored into repair costs.
|Extends warranty protection||Added cost|
|Provides added peace of mind||May never use it|
|May save money over the long run||Have restrictions on what they can be used for|
|Can purchase any time before the manufacturer’s warranty ends||Deductible may apply|
|Most benefits those who keep their cars for a long time||May take depreciation into account|
|Can include cost of warranty in your car’s financing||Can’t be used for normal wear and tear|
How much do extended car warranties cost?
The cost of an extended warranty varies from dealer to dealer, and depends widely on your vehicle specifications. Some may cost several hundred or up to $1000 or more per year. With different levels of coverage and higher costs for more extensive coverage of the car’s systems and parts, prices can vary widely.
You will generally have two options for paying: you can pay upfront by writing a check for the dealer; or you can include the cost of the warranty in your financing for the car’s loan. The latter option may lessen your out-of-pocket costs, but you’ll actually end up paying more in the end, since interest charges will be included.
Are extended warranties worth it?
In general, extended warranties are most worthwhile under exceptional circumstances. If you are someone who keeps your cars until the steering wheel comes off in your hands, an extended warranty may help you cover costs after the first few years, when your manufacturer’s warranty expires. Keep in mind, however, that some warranties factor in depreciation; you may not get as good a return on your investment if your car is older.
For most people, an extended warranty may be an unnecessary expense. New cars rarely need anything other than general maintenance servicing for the first few years of ownership. If you trade your car in every three or so years like clockwork, an extended warranty would likely be a wasted additional expense.
A better option might be to put the money you would have spent in a savings account that you use only in the event of a significant repair. Then you’ll have the money at hand, and can be earning positive interest on it until you need it.
- Extended car warranties cover some repairs to your car after your manufacturer’s warranty expires.
- They can be costly — several thousand dollars a year — and they don’t cover everything.
- Unless you keep your car for many years, extended warranties may provide limited benefit.
- For most car owners, it’s generally a better idea to save the money you would have spent on an extended warranty to put towards a repair.
Extended warranties are often offered when you’re buying a new car, which can be a costly spur-of-the-moment decision. But unless you drive cars till they expire, extended warranties may not benefit you. Newer cars rarely need extensive repairs, and most people replace them before they reach the point of the manufacturer warranty expiring.