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What a relief to have the security of a warranty so that you know costly auto repairs will most likely be covered. But what happens when the warranty times out? That’s a particularly key question when it comes to a car, which many of us depend on every day. So it can be a good idea to get the prolonged protection of an extended car warranty. But, will it cover everything that your original car warranty covered? Critics of extended car warranties say they don’t cover as many things as the original warranties, they are difficult to understand, and they seem to be of most benefit to the salespeople who push them in order to get their commissions.Here’s information to help you decide whether or not an extended car warranty is worth it.
What Is an Extended Warranty?
Typically, when you buy a new car, you get a manufacturer’s warranty, which covers you for certain repairs. But that warranty doesn’t last forever. If you want coverage for a longer period of time, you’ll need an extended warranty.An extended warranty presents itself as essentially an insurance policy on your vehicle, protecting you against expensive unforeseen repairs. It typically kicks in after your manufacturer’s warranty expires to cover the repairs for a specified period of time or a number of miles, whichever comes first.Extended auto warranties are also called vehicle service contracts or aftermarket warranties. They cost extra and can be sold separately from the car. Keep in mind that they technically are not warranties, so they are not subject to the same federal consumer protections.
How Does a Car Warranty Work?
When you buy a car, it typically comes with a warranty. This is best described as an agreement with the car’s manufacturer that it will cover the cost of certain repairs or issues that may crop up — particularly issues that result from vehicle defects or poor workmanship.While car warranties vary, you can generally expect that things like problems with the engine, transmission, and steering system will be covered. Recommended: What Are the Most Expensive Car Repairs?
Types of Extended Warranties
There are two primary types of extended warranties: Those that you get from the carmaker and those offered by third-party vendors, like an insurance or warranty company that is independent from the car manufacturer.
Car Manufacturer Extended Warranty
When you buy a new car, it generally comes with the manufacturer’s warranty. However, when you are making your purchase, you might also be offered an extended warranty by the manufacturer. You can choose whether or not to purchase this coverage.While some manufacturers may replicate the terms of your original warranty, others may not, so you’ll want to check the terms very closely if you move forward with one of these policies. You’ll also want to check when the extended warranty begins, because there’s no point in paying for duplicative coverage.
Third-Party Warranties
There are auto service contracts that may be offered by dealerships or by third parties, which you may be particularly interested in if you’re buying a used car. Costs and what’s covered can vary widely, so if this policy is something that interests you, be sure to spend time comparing prices, coverage limits, and terms before making a decision. Pay close attention to whether you’ll need to pay a deductible. It’s also a good idea to check the payment process for repairs. You might have to pay for the work on your car upfront and then file a claim for reimbursement.Some third-party warranties may have exclusions, rules, and requirements that manufacturers’ warranties typically don't. These downsides can include strict limitations on where you can have your vehicle fixed and hefty deductibles. There may be no guarantee that parts from the original manufacturer will be used.
What Is Usually Covered Under an Extended Warranty on a Car?
Make no assumptions. Warranties differ, so if you opt for an extended warranty, be sure you know what’s covered and what’s not. You might be able to get comprehensive bumper-to-bumper coverage for a car extended warranty. You may be able to find coverage for air conditioning and heating systems, electrical components, air bags, engine, transmission, and more. Or you might sign up for more targeted protection for the powertrain only or for other specific components.Plans can also vary in duration for a car extended warranty, with most providing three to five years of coverage.Your contract should also clearly spell out where and from what providers you can get assistance.
How Long Does an Extended Car Warranty Last?
The standard offered warranty is three years or 36,000 miles, whichever comes first. An extended warranty typically covers your vehicle anywhere from two to seven additional years. But you most likely will not have the exact same coverage on your extended warranty as you did on the original one.
Can You Cancel the Extended Car Warranty Later?
Most extended warranties can be canceled and you can get a prorated amount refunded to you.What if the warranty was included in your car loan? Unfortunately, your car payment won’t go down, but you may be able to pay off the car quicker after the refund is deducted from the balance of what you owe.Recommended: 8 Ways to Get a Lower Car Payment
How Does an Extended Car Warranty Impact Refinancing Your Auto Loan?
Whether you have an extended car warranty or not isn’t a factor when lenders are deciding if they will offer you a loan to refinance.Also important to know: If you refinance your current auto loan, you will not lose your manufacturer warranty. As for the extended car warranty, it will stay in place too, unless the language of your contract says otherwise. Knowing when to refinance your car as well as the pros and cons to a refinance and whether you should use a co-borrower is key. Learn more about the benefits and disadvantages of refinancing to see if this is the best decision for you.
What’s Not Covered in a Car Warranty?
If you’re looking at extended warranties, this is a list you want to pay special attention to. “What does an extended car warranty cover?” is the key question. It can be nerve wracking, as well as costly, when something you thought was covered is in fact not covered. Policies vary, but most often you won’t get coverage for routine maintenance, including oil changes, tire rotations, and the normal wear and tear on your car.
Are Tires Covered Under Warranties?
A tire defect could be covered in a warranty, but not problems caused by normal wear and tear of driving.Most often, the tire manufacturer provides the warranty on their tires and the typical duration is about four to six years. That coverage can include free repair if the tires develop problems during that window and/or replacement of tires if the original tires have manufacturing defects. Know, however, that if you need to make a claim, you will likely be asked to show proof that you’ve been taking good care of your tires regularly.Recommended: What Is the Cost to Replace Shocks and Struts?
How to Qualify for an Auto Warranty
The newest car on the block is likely to get more love when it comes to auto warranties. If you are buying a used car and the vehicle is less than 10 years old, it’s likely to qualify for the most favorable coverage. If your car is brand new, it’s probably still under its manufacturer’s warranty, and chances are that most extended warranty policies that run concurrently would involve duplicating coverage. That’s why it’s a good idea to make sure you know exactly when your extended warranty begins.The lower your mileage, the better your odds of being eligible for a full-coverage extended warranty. Some extended warranty companies cap mileage for eligibility at 100,000 miles. This isn’t surprising, since when you have a lot of miles on your car, repairs are likely not far away. Low mileage also helps lower the price of your coverage.
Cost of an Extended Warranty
How much is this extended protection going to cost you? Naturally, that depends. Factors include the age of your vehicle, how often you drive, the number of miles on your car, your car’s make and model, condition of the car, coverage type, and your deductible (if you have one, your premium will be lower), among others. For a ballpark figure, the average cost of an extended car warranty is about $2,800.
Pros and Cons of Extended Car Warranties
There are advantages and disadvantages to consider when it comes to deciding whether or not to purchase an extended car warranty.
Pros of a Car Extended Warranty
Some people say yes because they think it will bring peace of mind, though that’s not a quantifiable “pro.” The main advantage of an extended car warranty is saving money should you need a repair.
Savings on Car Repairs
An extended warranty can save you money once your original warranty expires and your car needs a costly repair — but only if that repair is covered under your contract. If it is indeed covered, instead of paying the entire bill yourself, you’d only be responsible for forking over the deductible — and then the warranty provider would pay for the rest.
Cons of a Car Extended Warranty
There are more cons than pros when it comes to extended car warranties. Cons may include:
Usage
The bottom line is many people who purchase an extended car warranty never use it. Consumer Reports has said that in member surveys “a majority of purchasers never used the warranties after buying them, and those who did shelled out more for these plans than they got back in benefits.”
Overlap
The coverage period of the extended warranty may overlap with the manufacturer’s warranty. This means you are paying for a warranty you’re already getting at no cost.
Coverage
Unfortunately, extended warranties on cars typically do not cover as much as most people would like. These warranties may involve multiple exclusions, as well as restrictions on where you can access service. If you have been paying for the plan all this time and then when you need it, the repair type is excluded from the contract, you’ll be unhappy.
Service Requirements
Look to see if the extended warranty contract says you can only have your car fixed at certain repair facilities. They may not be conveniently located, especially if you’ve moved.
Depreciation Clauses
Cars with significant mileage may have issues. Some extended warranties may only pay for a portion of the cost to repair or replace parts, and that is based on the car’s mileage.
Reliability
What if the dealer or manufacturer is the only entity under the extended warranty that can repair your car — and it goes out of business? You’d be left paying for a warranty that you cannot use. While this would be rare, it can and does happen and is something worth taking into consideration.
Is an Extended Warranty Worth it?
If you’re buying a vehicle with a reliable track record and you have a warranty on it, you may not need extra protection, especially at the price you’ll have to pay for it. The smarter play may be to “self-insure.” For this, you’d sock away some cash in an emergency account to take care of any repairs that might come up. Then, if you don’t need to use the funds for your car, you still have the money for other purposes.If you plan to drive this car to the end of its life, you may sleep better with an extended warranty. Just be sure to do your homework first so it’s peace of mind that is real.
The Takeaway
There’s no way to know in advance whether an extended warranty will pay off or not. One alternative is to save the money you would have spent on one in a separate emergency account.If you do feel like you want to buy an extended warranty, do your research first. Make sure it doesn’t overlap with your original warranty and there aren’t too many restrictions on where the repairs will be made.Are you thinking about refinancing? Learning how to refinance your auto loan is important. You can compare loan rates with Lantern by SoFi. Fill out one form and receive offers from multiple lenders in our network.
Frequently Asked Questions
Can I buy an extended car warranty later?
Will I still have an extended warranty if I refinance my car loan?
Should you buy an extended warranty before refinancing your car?
Photo credit: iStock/apfDesign
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About the Author
Nancy Bilyeau
Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
