Why you should not get an extended warranty on a new car

This is part of our Car Buyer's Glossary series breaking down all the terms you need to know if you're buying a new or used car from a dealership.

Here's the short answer: An extended warranty is coverage that you purchase that comes into effect after the original factory warranty period expires. Generally, you can purchase it at any time before the factory warranty runs out. Extended warranties may be offered by the manufacturer, or by a third-party company – and both types could be sold to you at a dealership. It is also known as a service contract.

Let's make some things extra clear before we go any further. There's more information below on each of these points.

1. You DO NOT have to buy an extended warranty when you buy the car.

2. You SHOULD NOT need an extended warranty to qualify for financing.

3. You PROBABLY SHOULD NOT buy an extended warranty at all. Yes, you read that correctly.

Understanding what sort of warranty you're buying, and who's actually responsible for administering the warranty, is very important. Just because the warranty is offered to you at a Ford or Toyota dealership when you buy the car doesn't mean that it's a Ford- or Toyota-backed warranty. Figure out who the carrier is and do some research to see how satisfied people are with the claims process.

You'll also want to make sure that the warranty will be honored at the dealer or mechanic you actually plan on servicing the vehicle at, and if it'll also cover a broad network of other dealers near where you plan on using the vehicle. What good is an extended warranty if your car breaks down and the tow truck has no participating mechanics to tow it to?