The Woes of Extended Auto Warranties

Lee Emmons | Flickr

By Jessica L. Anderson

It’s no surprise that extended warranties for autos rank high on consumer complaint lists. Contracts are riddled with exclusions, making it hard to tell what is covered and under what circumstances. If a covered part is damaged by a noncovered part, you may be on the hook for the whole bill. And if you haven’t followed the maintenance schedule, the warranty could be terminated.

Payouts over the life of an extended warranty typically fall short of the cost of the warranty. In a 2014 survey by Consumer Reports, more than half of extended warranty purchasers never used their policies. Those who did, on average, spent hundreds more on the policy than they recouped. The median price paid was just over $1,200 (though less-reliable brands and luxury makes charged $1,500 to $2,200); the median savings on covered repairs for all brands was $840.


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Despite the poor track record of extended warranties, one in three car buyers takes one home, says the Service Contract Industry Council. It’s easy to see why you’re likely to get the hard sell in the finance-and-insurance office. The difficulty of cashing in on a contract keeps the profit margin high (a 50% cut for the dealer is not unusual), and the added warranties keep customers coming back to the dealership for lucrative repairs after the manufacturer’s warranty has expired.

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Even if you don’t buy an extended warranty when you buy your new car, you may get another pitch when you bring your car in for routine maintenance or via an official-looking notice mailed to you just before the manufacturer’s warranty expires.

Buying peace of mind. One big reason people never use an extended warranty is that cars are more reliable than they’ve ever been, and manufacturers’ warranties are better, too. Bumper-to-bumper coverage lasts three or four years, and the powertrain is covered for five to 10 years. If your car is rated highly for reliability, it’s less likely you’ll find value in an extended warranty. In Consumer Reports’ survey, owners of traditionally reliable makes, such as Honda, Subaru and Toyota, were far less likely to have used extended warranties than buyers of brands that have had average or below-average reliability or luxury brands that tend to have high repair costs.

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Here are four tips to keep in mind when signing up for an extended warranty.

1. If you’re determined to buy an extended warranty, do some homework. Know what’s covered by any policy you’re considering as well as what your factory warranty covers. Some policies offer extended bumper-to-bumper coverage, some offer powertrain coverage, and some offer both. You may find extensions of the original warranty to 10 years or 100,000 miles, or even longer. Bumper-to-bumper coverage will probably give you the most bang for the buck. The engine and transmission are the most costly to repair, but they’re covered by the original powertrain warranty, and most repairs today aren’t related to the powertrain.

2. Warranty prices are negotiable. Get an offer from your dealer as well as other dealers in your area, and be prepared to haggle. Prices will jump after your original warranty expires.

3. The issuer of the warranty makes a difference. Steer clear of third-party sellers; you’ll be limited to certain shops or need authorization for repairs, and you will often have to pay out of pocket for the work done and then be reimbursed. “Automakers offer the safest harbor if peace of mind is your top priority,” says Kelsey Mays, consumer affairs editor for Prices are similar to third-party warranties, the dealer takes care of the paperwork for repairs, and you can get repairs done at any dealership that services your brand.

4. Know the cancellation policy. If you purchase a warranty and then change your mind, in most states, you have the right to cancel within 30 days of signing if you haven’t used the policy.

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