Auto Loans

Pros and Cons of Extended Car Warranties: What You Need To Know


Extended car warranties go beyond the standard car warranty to provide additional coverage and extend the life of the warranty for an additional cost. They can help reduce the cost of a breakdown, and they are customizable to fit your needs. However, beware that you may be limited to certain repair shops. To find out if an extended warranty is right for you, check out the information below.

Driving home with a new car — or new to you, at least — is an exciting experience. But the car-buying process can be stressful for some. Getting the best deal requires you to spend time researching what you can afford and comparing different makes and models. When it’s time to discuss the contract, however, many people haven’t spent much time thinking about whether or not they should buy extended car warranties (sometimes called a service contract). This article will provide a detailed review of the pros and cons of extended car warranties.

What are the pros and cons of car warranties?

If you’re buying new, the car may come with a warranty baked into the sales price. But if not, you’ll need to decide if it’s worth it. Therefore, it’s important to weigh the pros and cons of a car warranty to determine whether it’s worth the cost.


Compare the pros and cons to make a better decision.

  • It is cheaper than a breakdown.
  • You can customize your coverage.
  • Peace of mind.
  • It’s a gamble
  • Not all repairs are covered
  • You may be limited to certain repair shops

The benefits of extended car warranties

Here is a quick summary of the pros and cons of an extended car warranty.

It is cheaper than a breakdown

The cost of a warranty will differ depending on the dealership and the age, make, and model of the vehicle. One thing is for certain: the cost is usually much lower than what it’d cost you if the car suffers a major mechanical or system failure.

As such, the warranty insures you against potentially crippling expenses down the road. And if you’re financing the car, the dealership rolls the warranty into the loan rather than asking you to pay for it upfront.

You can customize it to fit your needs

Dealerships typically have several warranties from which you can choose. For example, if you don’t want an expensive bumper-to-bumper warranty, you can opt for a powertrain warranty instead. You can also decide how long you want the warranty to last.

Peace of mind

Whether or not you can afford expensive repairs down the road, buying an extended car warranty means you don’t need to bother with it. You can rest easy knowing that, if something happens, it’s not your financial problem.

It’s hard to put a dollar value on [peace of mind]. Some people just feel more comfortable knowing that the dealer has their back.

The downside of extended car warranties?

The main problem with extended car warranties is they are expensive. Some can be over 100 dollars per month depending on the type of car you own. However, the good news is that extended car warranties are completely optional. You don’t have to get an extended warranty when you buy a car or at any other time for that matter.

It’s a gamble

It’s impossible to know the future, and you may not ever need the warranty. If this happens, you’re out hundreds or thousands of dollars with nothing to show for it. And if you’re financing your car, you’re also paying interest on that warranty.

You may be limited to certain repair shops

If the dealership offers a third-party warranty, you have to use the repair shops that partner with the warranty provider. If you’re thinking of moving to a new city, it’s possible that the provider doesn’t partner with any shops in the area at all.

What is an extended warranty?

An extended warranty is an insurance policy on your vehicle, a safeguard against expensive, unforeseen repairs. It covers repairs for an agreed-upon period of time and miles. True warranties, though, are included in the price of the product. Extended auto warranties are really vehicle service contracts because they cost extra and are sold separately.

What is the difference between extended car warranties and manufacturer warranties?

Manufacturer warranties usually only cover certain problems with the vehicle. Extended warranties or service contracts sold for an additional charge include coverage for issues with mechanical and electrical parts that are typically not covered by the manufacturers’ warranty.

In general, manufacturer warranties are provided by car manufacturers as part of the overall cost of a new vehicle. These warranties will cover certain problems related to specific components of the car such as the engine, transmission, or brakes, and offer coverage for a limited period of time or a maximum number of miles.

How do extended car warranties work?

Extended warranties are sold as an extra by auto dealerships. These offer coverage for mechanical and electrical components that are not covered by the manufacturer’s warranty. Extended warranties typically exclude routine maintenance such as oil changes and tire replacement.

What does an extended warranty cover on a car?

If you’ve ever seen an extended car warranty contract, you know that there’s a lot of fine print. Each contract includes a list of exclusions, which covers the parts, systems, and repairs that the warranty doesn’t cover. Read all the fine print before signing to make sure you’re not spending a lot for minimal coverage. In summary, each one is different depending on the dealer or manufacturer.

“Also, warranties can be voided in some cases if you fail to follow service intervals correctly, put the wrong kind of oil or fuel in the car, or install parts that are not factory approved.”

Do extended warranty agreements really provide extra coverage?

Yes, typically extended warranty agreements will provide extra coverage. However, you should always do your due diligence and make sure you know what your warranty coverage is. Compare the warranty coverage to the service contract to see if there’s any benefit to additional coverage.

Check the fees and terms of the extended warranty contract. Before agreeing to anything, make sure you read the terms contract and save a copy for your records. It varies by provider, but a service contract can often last for less than a year or more than five. Some coverages, such as accidental damage may not be covered. You also need to consider what clauses the provider requires you to meet to offer you extended warranties.

Extended warranties don’t cover everything. They typically provide a list of the specific forms of protection for specific repairs. If you don’t see a part or a function as specifically covered, it’s safe to assume that it’s not.

Remember that extended warranties also come with other expenses. You may also need to send the product you need to a repair center. So don’t forget the cost to purchase an extended warranty. Some service contracts set reimbursement amounts. For example, auto service contracts may not completely cover towing or rental car expenses. In addition, you may have to pay a transfer fee if you sell the vehicle.

Issues to consider when comparing warranty companies

If you are in the market for an extended warranty, you should check the terms of the contract very carefully. Here are a few things to consider.

  • What is the cost of the extended warranty? Price is often negotiable.
  • What does the extended warranty actually cover? What types of problems or repairs are covered, and what is not covered. This is all listed in the fine print and may take quite a bit of research to fully understand all of the details.
  • How long will the extended warranty last? Some are based on years, miles, or a combination of the two.
  • Is there an overlap between the extended warranty coverage and the manufacturer’s warranty? If so, you may want to consider a different warranty to avoid pay for the same coverage twice.
  • How you do plan to use your vehicle? Not all warranty companies have the same requirements, so it pays to check there are no coverage holes before you sign a contract.

Is it good to buy an extended car warranty?

An extended car warranty may help cover the cost of certain repairs to your vehicle when the manufacturer’s warranty expires. While it may sound like a good idea, extended warranties often come with a high price tag and don’t necessarily cover everything that could go wrong. Whether it is good or bad depends a lot on your personality and your tolerance to risk. Are you the type of person that has insurance on your smartphone or that pays for an extended warranty on a laptop or water heater, they a car warranty may be a good option.

Self-insurance as an alternative to an extended car warranty

In most cases, extended car warranties are a bad deal for car owners. However, there is no denying that it feels good to know you have some protection if you are hit with expensive car repairs. So, what can you do to avoid the cost of an extended car warranty but still enjoy the benefits. One option is to open a high-yield savings account and deposit the equivalent of the cost of every extended warranty you are tempted to buy. Use this account as a fund to replace purchases that break prematurely. Extended warranties can cost 10% to 50% of the cost of a purchase, so over time you will probably find that your self-insurance program is significantly cheaper.

Another option is to invest what you otherwise would have spent on an extended car warranty and use a credit card or a personal loan to finance a large auto repair you can’t afford to pay with your emergency fund. If you have good credit, you may qualify for 0% APR intro offers on a credit card or low interest rate loan. In such cases, the money you earn from your investment will probably more than cover the interest you pay on the loan or credit card.

How do I Decide if an Extended Car Warranty is Right for Me?

If you’re not sure if an extended car warranty is right for you, ask yourself the following questions.

How long do you plan to keep the car?

The older the car gets, the more likely it’ll suffer from mechanical or system issues. If you’re the type to buy new and keep the car for only a couple of years, it’s less likely that you’ll need warranty coverage.

Who has the best extended car warranty?

Some cars are more prone to breakdowns than others. Therefore, some dealers offer better-extended warranties than others. If you were buying a Toyota Camry, you might not  want to add an extended warranty. But if you’re buying a Range Rover, which doesn’t have the same reputation for reliability as a Camry, you may want to consider it.

When buying a used car, make sure you do your research on the car’s previous repair history. Something makes you believe it could turn into a bigger problem? A warranty may be a good idea.

How Can I Find Out if My Car is Already Under Warranty?

1. Get your vehicle identification number (VIN). You can find it on an insurance card or on your vehicle’s title. 2. Call a same-make dealership. If you know where the vehicle was purchased, call there, as staff can look up let you know when the vehicle was purchased and if any warranty still exists based on your current mileage.

What is a good price for an extended car warranty?

In general, the average extended car warranty cost ranges from $350-$700 per year, but every person and policy are different. When your car needs repairs and you don’t have coverage, the mechanic will require payment in full.

Can you negotiate an extended car warranty?

If you’re going to be buying an extended warranty, the first step is to make sure you negotiate it separately from the car purchase. This means you should negotiate AFTER you’ve agreed on the price of the vehicle, but before you sign any paperwork.

A dealer may say that the price isn’t negotiable, but it can be if you do enough planning beforehand. Before visiting the dealership, call and ask for warranty pricing. Then, do the same for other dealerships in the area. Knowing that another dealership offers a better deal may be an incentive for the dealer to offer a lower price.

“If the dealer [still] won’t budge on warranty pricing, try to negotiate better terms in other areas, such as extending the factory service plan.”

Will you regret your decision?

Extended car warranties, like most types of insurance, typically cost more than you get out of them. So, you may find yourself you had invested the cost of the extended warranty in something more tangible if you don’t use the warranty. However, just one major repair that is covered by the warranty can justify its cost. Don’t overthink it though. Remember that an extended car warranty is a nice extra for people who value the peace of mind of knowing they are less likely to be hit with an expensive auto repair bill. If you feel like the decision not to buy an extended car warranty will nag at you, it may be worth the peace of mind. The same goes for the other side of the coin. If you feel pressured to buy it and you think you might experience buyer’s remorse, go with your gut.

Are Extended Car Warranties Worth it?

Some personal finance experts are staunchly against extended car warranties. But, just like almost every other financial product out there, there’s no one-size-fits-all solution. Do your research beforehand and consider your risk tolerance. Ask the right questions at the dealership and make sure your decision is an educated one.

Things to remember when considering an extended car warranty

  • An extended car warranty covers more than a typical car warranty in terms of parts, services, and duration of coverage.
  • They are sold as an “add-on” by dealerships and are generally negotiable.
  • Extended warranties offer additional coverage and peace of mind.
  • They can be expensive, so you’ll want to thoroughly evaluate the cost.
  • Extended car warranties can be worth it depending on the type of car you own and the terms of the warranty.

To further ensure that you’re making the right financial decision with your car, you should also compare auto loan providers to make sure you’re getting the best rate possible. This free loan offer engine makes it easy to get firm loan offers (and rates) without hurting your credit score. A lower interest rate could even be enough to help cover the cost of a warranty over time.