Should You Buy an Extended Car Warranty?

While buying a used car is often a smart financial decision, some consumers don’t want to sacrifice peace of mind by purchasing a car that’s been owned by someone else. That peace of mind is also a big reason car buyers decide to purchase an extended car warranty when they go car shopping. Extended warranties are exactly what they sound like - an extension of the factory warranty that comes standard with every new car sold today. For a single one-time fee, you can extend your coverage for a few years beyond when the normal auto warranty expires.

It's a tempting offer, one that looks even better when the cost of it gets rolled into a monthly payment with your car loan. For a few dollars more a month, why shouldn't a car buyer splurge on it?

But there's more to it than that. Many buyers of these warranties eventually realize they spent more on the warranty than they got out of it.

You'll want a full understanding before you make any decisions about getting an extended warranty. To help, we've gathered up the facts to help you decide if extended car warranties are worth it.

What is an Extended Car Warranty?

An extended warranty - also known as a vehicle service contract - is an agreement brokered between you and the warranty provider over who pays for car repair costs to your vehicle during a stated window of time.

The premise is simple. You'll pay upfront for the warranty, and if anything happens to the car during the period of coverage, the warranty provider should pay all costs, less any deductible.

That's the idea of it, at least. In reality, the warranty provider may not cover every sort of unexpected repair your car might need. They also might reduce coverage for certain repairs as the car continues to depreciate or as mileage accumulates. Each extended warranty is different in this regard, so you'll need to carefully read the fine print. The last thing you want is to get in a dispute with the provider over who is paying to fix your car when it's down and out on the side of the road.

Manufacturer Warranty Vs. Extended Warranty: What Does Each Warranty Cover?

Every new car comes standard with some sort of manufacturer's warranty. There's usually two types: the bumper-to-bumper warranty and the powertrain warranty. The latter one covers the engine, transmission, drive system, and other critical mechanical components. The bumper-to-bumper takes care of anything that doesn't fall into that category. In the event of a mechanical breakdown, such as your radio or air conditioning failing, or a turn-indicator relay burns out, or the seat motors freeze up - all that should be covered by the bumper-to-bumper warranty. Wear and tear stuff like brake rotors, brake pads, tires, and oil changes are not covered by either warranty.

Most manufacturers offer bumper-to-bumper warranties for three years or 36,000 miles, though this may vary. Powertrain warranties also vary but are typically good for five years or 60,000 miles. Hyundai and Kia notably offer 10 years or 100,000 miles on their powertrains, which is the best in the business. Other automakers like Toyota, Honda, and Ford offer 5 years or 60,000 miles, whichever occurs first.

Extended warranties kick in once the factory warranty expires. They also make distinctions between bumper-to-bumper and powertrain coverage, but they may not be as comprehensive as the factory warranty. The provider should offer a list of inclusionary and exclusionary items that spells out what is and isn't covered by these warranties. Consider it a must-read before buying any warranty.

Again, we can't stress enough the importance of reading the fine print that comes accompanies any extended warranty, so you can know exactly what constitutes a covered repair should your car break down.

Extended Car Warranty: New Vs. Used Cars 

New cars are covered by the manufacturer’s warranty. However, if you anticipate owning your new car for longer than the duration of the manufacturer’s warranty, you can buy an extended car warranty during your purchase process. Buying an extended warranty on a new car is often less expensive than purchasing one for a used car.

Used cars do not come with a warranty, unless you are purchasing a certified pre-owned (CPO) vehicle. Therefore, an extended warranty can provide necessary protection against costly repairs. Extended warranties can even be found on high-mileage vehicles with 100,000 miles or more. However, cars older than 10 years old or those that have over 200,000 miles may not qualify.

Extended Warranty Cost and Providers

Some extended auto warranties are available through the manufacturer, while most come from a third party such as the car dealership, an auto club like AAA, or another service provider.

When you're purchasing a new or used vehicle from the dealership, the salesman will likely offer you an extended warranty. If you choose to buy it, the price of the service contract will be bundled into the financed amount of your auto loan. You can also make a larger down payment or opt to pay annually. This is convenient, but it will also cost you: a larger amount will need to be financed, which in turn results in paying more interest over the life of the loan.

As for a dollar value, expect to shell out between $1,000 and $3,000 for an extended warranty plan. The exact pricing depends on factors including the level of coverage and the amount of your deductible, as well as the age, make, and model of your car.

Popular third-party warranty companies include Carchex, CarShield, and Endurance. AAA also offers a limited extended warranty that goes beyond their usual roadside assistance services like tire changes, towing services, and battery jumps. The national used-car dealer Carmax offers a generous extended warranty covering the cars they sell. (Check out our guide that details CarMax warranty options.)

Extended Warranty Benefits

The biggest benefit is the peace of mind you get when driving an older, high-mileage car that isn't covered by any sort of factory warranty. You can rest easy knowing that if anything were to fail on your car, you'd likely only be liable for the deductible. The warranty provider would take care of the rest, often paying the repair facility directly. That means you won't have to scramble to pay staggering repair bills should anything serious fail on your car.

To fit your budget and needs, extended warranty providers often offer various coverage plan options so you can get just the right amount of protection. They may also come with perks like towing, rental car reimbursement, and even roadside assistance. The better providers will let you choose your repair shop as well.

Similar to car insurance, an extended warranty is there when you need it but invisible otherwise.

Extended Warranty Drawbacks

The biggest issue with the extended warranty is the general reliability of today's cars. Studies have shown that most buyers of extended warranties spend far more on the warranty than they get out of it in saved auto repair costs; many don't end up using the warranty at all.