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If a car salesperson is pitching you an extended warranty, tap the brakes.
While a warranty might sound like a good idea, it often comes with a high price tag and won’t cover everything that could go wrong. Plus, you could already be covered through the manufacturer’s warranty.
Before driving away with one of these policies, learn about the pros, cons, and alternatives.
What Is an Extended Car Warranty?
An extended car warranty is an optional vehicle service contract you can buy from a third-party vendor. These cover the price of major repairs or replacements for a certain number of years or number of miles. The warranty usually begins when the manufacturer’s warranty expires, but sometimes the two overlap.
While a car salesperson might pitch you a policy at the closing table, you shouldn’t feel rushed — you can always get one later. “You don’t need to purchase an extended warranty the day you’re buying the vehicle,” says Mark Friedlander, director of corporate communications at the Insurance Information Institute. “You can purchase it anytime until the original manufacturer’s warranty expires.”
To use an extended car warranty, you may need to take your car to an authorized repair center, pay for the work upfront, and then request reimbursement later.
If you don’t have enough money to pay for unexpected car repairs yourself, then you may want to consider purchasing an extended warranty or mechanical breakdown insurance coverage. MBI tends to be less costly than an extended warranty, and you will also still get the peace of mind that comes with knowing any significant repairs will be covered.
Types of Extended Car Warranties
Extended car warranties usually fall into two main categories: Manufacturer’s warranties, which are automatically offered by car manufacturers in most new cars, and aftermarket warranties, which are sold by third-party vendors.
Manufacturer’s warranties usually cover the following situations:
- Basic warranties come with most new and certified used cars. These cover major parts and systems that break down because of flaws or defects in factory-installed parts.
- Bumper-to-bumper warranties offer comprehensive umbrella coverage for all of a car’s parts and systems, aside from routine maintenance and damage from wear and tear.
- Powertrain warranties cover the car’s engine, transmission, and any power components that connect to the car’s wheels.
- “Secret” car warranties offer free repairs from the car manufacturer. They’re also called “silent recalls” or technical service bulletins (TSBs). Search the National Highway Traffic Safety Administration’s database to see if your car has a TSB.
Aftermarket warranties, usually offered by dealerships or third-party companies, range across these types:
- Extended warranties offer protection that’s similar to what you get in a manufacturer’s warranty, but they have exclusions and rules surrounding what they cover.
- Adjustment warranties cover certain car repairs within the first few weeks or months of buying the car.
- Wrap warranties supplement a powertrain warranty, so they effectively provide bumper-to-bumper coverage.
- Corrosion warranties help pay for damage caused by rust.
What Does an Extended Car Warranty Cover?
Extended warranties act like an insurance policy for your car’s major parts. If something breaks down and needs repairs, you can take the car to an authorized shop and pay a deductible (plus a portion of the bill, in some cases).
Exactly what the policy covers will vary with every provider and the type of warranty you choose. Generally, extended warranties won’t cover routine maintenance or damage caused by normal wear and tear. They may cover the major mechanical parts of your car, such as the engine and transmission, plus add-ons like 24/7 roadside assistance, rental car reimbursement, trip interruption service, and tire protection.
The Federal Trade Commission offers this rule of thumb: “If an item isn’t listed, assume it’s not covered.”
How Much Does an Extended Car Warranty Cost?
The price tag on extended warranties can range from $1,000 to $5,000, Friedlander says. The cost is usually based on the car’s make, model, condition, and the contracted length of coverage. You might have to pay a deductible every time you submit a claim, plus kick in money for a portion of the bill.
Some people choose to roll the cost of the warranty into their car loan. But in that case, you should think about the long-term cost. “You’re going to be paying interest on the warranty you just bought, so you add a significant, additional expense,” Friedlander warns.
If you want to buy one of these policies, negotiate with the dealer to get the price down, says Ruth Susswein, deputy director of national priorities at Consumer Action. “You’ve probably done some haggling over the price of the car,” she says. “You can, and should, negotiate the price of the warranty.”
Offering 60% of the cost of the contract is a good place to start your negotiation, says Jack Gillis, executive director of the Consumer Federation of America.
What Are the Benefits of an Extended Car Warranty?
Extended warranties provide two main benefits:
- You may save money. If your car needs a costly repair that’s covered under your extended warranty, the warranty could ultimately pay for itself — even if you have to cover a deductible and a portion of the bill.
- Provides peace of mind. According to a Federal Reserve study, 40% of Americans don’t have $400 in the bank to cover a financial emergency. An extended warranty could give you peace of mind if you’re worried about how you’d cover a car repair bill.
What Are the Drawbacks of Extended Warranties?
When it comes to the long-term cost of your car, extended warranties are generally “a bad deal,” says Gillis. In a Consumer Reports survey, 55% of people who purchased an extended warranty never touched it. Among those who did use the warranty, most saved less on repairs than they paid for the contract.
Other drawbacks include:
- Overlap: You might not need the extended warranty if you’re already covered through the manufacturer’s warranty or a mechanical breakdown insurance policy. In that case, “the extra coverage is not worth the cost,” Gillis says.
- Exclusions: Every contract comes with fine print that specifies how you can use the warranty. For example, the provider might deny coverage for problems caused by normal wear and tear or reduce the claim payout based on your car’s depreciation.
- Extra costs: Some extended warranties cover a portion of the repair bill. You’ll have to cover the rest, plus a deductible.
- Limitations: Instead of choosing your own mechanic to fix your car, you might have to bring it to a warranty-approved shop.
- Sunk cost: In a Consumer Reports survey, 55% of respondents who bought an extended warranty didn’t wind up using it.
Alternatives to Extended Warranties
The manufacturer’s warranty should cover major defects within a certain window, usually three years or 36,000 miles, whichever comes first. If you want to stack protection, you can:
- Add mechanical breakdown insurance: Some insurance companies let you add mechanical breakdown coverage to your existing car insurance policy for about $100 a year. MBI policies usually “cover big-ticket items,” Friedlander says, “like the engine, drive train, transmission, brakes, exhaust, and power system — your major mechanical components of the vehicle.” But MBI usually won’t cover typical wear and tear.
- Open a dedicated savings account. It may make more sense to set aside the money you would spend on the policy. Then, make a habit of saving $50 a month for emergency auto repairs, the AAA recommends. If you never use the money, you’ll still “build up your down payment for your next car,” Gillis says.
Should You Buy an Extended Warranty?
If your new car comes with a manufacturer’s warranty, there’s no need for extra coverage right away. But you might decide to buy one later on if your car is unreliable and you can’t pay for expensive mechanical repairs.
You can usually buy an extended warranty anytime before the manufacturer’s warranty expires. Try to negotiate the price to get a good deal.
“Be sure you understand the fine print,” Gillis advises. Understand what the policy covers (and doesn’t cover), when coverage kicks in, where you can get service, and the costs involved. Research the company and “look for patterns of complaints,” Susswein says. A good warranty should provide coverage beyond what you already have and come from a legitimate company.
In most cases, though, these policies don’t make financial sense. “We think you’re probably better off buying the most reliable car you can, invest in maintaining it, and putting some money aside for repairs,” Susswein says.
An extended car warranty is one way to ensure your standard car warranty is extended so that you’re covered as a driver. But it doesn’t necessarily mean that it’s worth it. In general, most people don’t ever use their extended warranty so it’s likely not worth it.