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Updated on Wednesday, March 6, 2019
When you buy a car, having a manufacturer’s warranty that covers certain repairs and services can give you extra peace of mind. If that manufacturer’s warranty is a good idea, wouldn’t a longer warranty, or “extended warranty,” be even better?
Possibly. Whether buying an extended warranty is right for you depends on a number of things. Before you decide to buy one, make sure you understand what extended warranties really are, and how they work.
What is an extended warranty?
An extended warranty is not a warranty as defined by federal law, according to the Federal Trade Commission. Manufacturer warranties come with the car and they don’t carry an extra fee.
“Extended warranties,” on the other hand, always cost extra. They are actually service contracts, under which the provider promises to perform, or pay for, certain repairs or services.
What does an extended car warranty typically cover?
An extended car warranty, or vehicle service contract, covers certain types of repairs in addition to or after the manufacturer’s warranty ends. They generally cover:
- Mechanical breakdowns. Different types of breakdowns may be covered for different periods of time or numbers of miles.
- Other specifically covered services and problems. For example, some contracts offer services such as free oil changes, if specified. (Some dealer incentives that include oil changes are not part of the extended warranty.)
- Extra coverage with more comprehensive plans. With certain plans, you may be entitled to towing services, a rental while your car is in the shop, or travel insurance.
What does an extended warranty not cover?
Extended warranties generally don’t cover predictable care and servicing of a vehicle. For example, warranties may not cover:
- Running costs such as windshield wipers, brake pads and other regular maintenance, unless specified by your contract. Tires are generally not covered by extended warranties; however, most tires are protected by some kind of tire manufacturer warranty if they wear out prematurely, according to Edmunds.
- Your warranty deductible. You may have to pay $100 per visit or per part, for example.
- Problems due to lack of maintenance. Neglecting to check or change the oil, for example, may void your warranty.
- Diagnosis costs. If a mechanic must tear your engine apart, only to find out the problem is caused by non-covered parts, you may have to pay for the parts and labor.
- Problems caused by “normal wear and tear.”
- Anything not listed as covered. The Federal Trade Commission (FTC) advises that if an item isn’t listed, you should assume it’s not covered.
When should you consider an extended car warranty?
An extended car warranty can be a good idea in certain circumstances; for example if:
- You need a predictable budget. An extended warranty can protect you from covered major repair expenses. Be aware that the warranty won’t cover everything, however.
- You understand what is and isn’t covered by the contract. Take time to read the fine print, before you sign.
- You can meet all the contract requirements. Extended car warranties come with rules about regular maintenance. You may be required to have free services done at the dealership, or by approved companies.
Under the Magnuson-Moss Warranty Act, enforced by the FTC, your contract cannot be voided because you or another mechanic performed routine maintenance and repairs on your car that would not be free under your contract.
When should you skip an extended car warranty?
- When the service contract overlaps with your manufacturer’s warranty. Manufacturers’ warranties on new cars generally offer coverage for at least three years or 36,000 miles, whichever comes first. Your extended warranty probably does not offer you benefits until the manufacturer’s warranty ends, according to the FTC.
- When a nontransferable contract may last longer than you own the car. Some contracts cannot be transferred, or they require a fee in order to transfer the contract when you sell the car.
- You live far from the service location. Some contracts only offer service that is included in the contract in a certain location. If you bought your car out of town, or if you later move, that might be inconvenient or impossible.
- If you are pressured to buy the extended warranty. Some dealers may give you the impression that you are required to buy the contract or that you can’t get financing without it. According to the FTC, you are generally not required to buy an extended warranty either to purchase a car or to get financing for it.
Shopping around for extended car warranties
Make sure you know these things before you sign:
- Who provides and administers the service contract? Dealers sometimes make it seem you can only buy extended warranties from them, and that they are providing the service contracts. Service contracts can actually be provided by the dealer, the manufacturer, or a third party. They may be handled by an administrator.
- Who is obligated to fulfill the contract? Find out who backs your contract if the provider or administrator goes out of business, and if the contract is backed by an insurance company.
- Who is selling you the warranty? If you got a robocall about the warranty on your car, be careful. The FTC describes phone pitches for extended warranties as often “high pressure,” and says they may demand personal information. Some calls are actually scam artists trying to get your Social Security number, bank account number, and other information.
Factory warranties vs. third-party warranties. While an extended manufacturer warranty is only available from the manufacturer, you can shop around for your own extended warranty. You could also call dealerships in your area to compare going rates. At the very least, you’d be armed with a few quotes before buying your new car though you could add an extended warranty at any time, as long as the car is within limits of age and miles. AAA offers extended warranties as may other motor clubs in addition to private companies.
Negotiating an extended car warranty
Negotiating to purchase a car doesn’t stop with determining the cost of the car you’re purchasing and how much you pay for an auto loan. You may also have room to negotiate the cost and benefits of your extended car warranty.
Get your best deal on a warranty the same way you got a deal on your car. Know as much as possible before you get there, including whether you are even interested in a service contract. Don’t necessarily take the first price you hear. And be willing to say “no” if the deal doesn’t sound like it’s in your best interest.
Alternatives to buying extended car warranties
An extended warranty isn’t the only way to handle car expenses or unexpected repairs. Consider these alternatives for managing your risk:
- Budget for car service and repair expenses yourself. Car maintenance is expensive. Buying a service contract doesn’t make the expenses go away — you just pay for them another way. Work toward maintaining enough in your savings to pay for both predictable expenses (such as tires) and less predictable expenses (like transmission trouble). You might start your savings fund with the money you don’t spend up front for an extended contract.
- Buy a more dependable, easy-to-fix car. Some cars are in the shop more often — and cost more every time they go there. Ask your mechanic which cars he recommends. You could also check out recommendations from organizations such as Consumer Reports or research ratings from government agencies such as the National Highway Traffic Safety Administration or Insurance Institute for Highway Safety.
After you pay for a warranty
Keep an eye out for written confirmation of your service contract. It shouldn’t happen, but the FTC says some dealers take the money from extended warranty sales and neglect to forward the payment to the administrator or third party, leaving the buyer without coverage.
Be sure to maintain your car as required under your contract, and keep your receipts. For one thing, your contract may be void if you don’t. More importantly, a well-maintained car is less likely to need major repairs. The only thing better than having a big repair bill covered by a contract is to not have your car break down at all.