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Are extended car warranties worth it?

Are extended car warranties worth it?
(Image credit: Getty)

Buying a new car is a big financial commitment, so naturally it's reassuring to have the peace of mind provided by a warranty should the unexpected happen.

Basic manufacturer, or factory, limited warranties that come with brand new vehicles are like guarantees you get with new TVs or refrigerators and they vary between automakers. For instance, the industry standard is a three-year or 36,000-mile warranty, which means that once a car is either three years old or hits the 36,000-mile mark, the warranty expires. Some manufacturers, such as Hyundai, Kia and Genesis, offer longer warranties of five years/60,000 miles. 

A factory warranty, sometimes known as a 'bumper-to-bumper' warranty, covers repair and labor for almost all parts of a vehicle. There are exclusions such as parts that fail due to general wear and tear (eg brake pads, tires and wiper blades), plus damage or negligence caused by an accident.

What is an extended warranty?

New car buyers may also be offered an extended auto warranty for continued coverage when the manufacturer’s warranty expires (eg three years).

However, it is purchasers of used cars that are most likely to opt for extended car warranties, also known as vehicle service contracts or aftermarket warranties. After all, when you're buying second-hand you're investing in something of an unknown quantity. Such warranties bought for used cars are generally sold by auto dealers and third party-vendors, and they act like an insurance policy should your car break down or need repairs.

Prices are based on several factors such as the make of vehicle, its age, mileage and condition, the level of cover you’re seeking and whether you’re buying from a dealership or third-party provider.

Are extended car warranties worth it?

(Image credit: Getty)

Pros and cons of extended warranties

Pros

  • Like any kind of insurance policy, if your car needs a costly repair that’s covered under your extended warranty, the policy could pay for itself after just one claim.
  • Peace of mind is vital, especially when buying a used vehicle or pre-loved car, so not having to worry about expensive auto repair bills is really important.
  • As any repairs are likely to have to be carried out by mechanics approved by your warranty vendor, these certified engineers will probably use branded parts, which should help your vehicle maintain reliability and retain its value.
  • If your warranty plan also includes roadside assistance, tire protection and rental car reimbursement, that's another load off your mind, should the worst happen.
  • Most warranties of this kind are transferable, so could be attractive to potential buyers when you come to sell your car.

Cons

  • According to a Consumer Reports survey, 55% of people never end up using their extended plan.
  • Most policies have exclusions. For instance, your warranty is likely to be voided if you don’t follow the recommended maintenance schedule.
  • Broadly speaking, such warranties do not cover maintenance, which may exclude oil changes, timing belt replacements and tune-ups, as well as components subject to wear and tear, including brake pads and windshield wipers.
  • It's unlikely that you will be able to choose your own mechanic to carry out a repair or maintenance - these will have to be performed at the automaker or third party vendor's approved repair shop, so you can’t shop around.
  • You might feel tied down to your current vehicle if it has extended cover, meaning you will probably delay changing it for a newer model than you would otherwise.

Top warranty tips

1. While an extended warranty sounds like a good idea, it may overlap with the vehicle’s existing manufacturer’s warranty, so check that you’re not doubling up before signing on the dotted line.

2. When shopping for such warranties, call around and get quotes customized to your vehicle. You can compare each company’s prices and get a feel for customer service.

3. Warranties can vary in length of time, what they cover, price, where the work can be done and whether new or reconditioned parts are used, so be sure you know what you’re looking for.

4. If you baulk at the price of the auto service contract on offer, try to negotiate the price, just like the purchase of a car.

5. A basic plan probably best suits older vehicles, protecting them against listed essential mechanical and electrical components. Comprehensive packages may only be worth it if you drive a newer car packed with technology.

Are extended car warranties worth it?

(Image credit: Getty)

6. Think about the warranty term and how long you plan to own your car.

7. If possible, pay for your plan up front. As is the case with the best auto loans, monthly payments may be easier on your wallet in the short term, but they can work out more expensive overall. Study the payment plan and look at the total amount payable.

8. Beware of calls from scammers posing as representatives of a car dealer, manufacturer or insurer telling you that your warranty or auto insurance is about to expire.

9. If you are suspicious of a caller, do not provide any personal information, such as a social security number, credit card information, driver’s license number or bank account information unless you can verify you are dealing directly with a legitimate company.

10. Finally, if you’re unsure, consider buying a used car with a reputation for reliability, rather than "buying blind" and covering your choice by investing in a warranty. 

Are extended car warranties worth it?

Like any insurance policy, you pay for an extended car warranty in the hope that you’ll never use it. For many owners, the peace of mind alone is worth the price, and if something major goes wrong, then a single claim could be worth more than the entire policy. So, if you're worried about being able to pay for potential big repairs, one of these warranties could be right for you. 

However, plans can cost as much as several thousand dollars upfront, so it's also about conducting a cost comparison of the warranty versus common repairs. Paying for repairs yourself can work out cheaper than taking out a warranty.

A 2018 survey of more than 1,000 US-based consumers commissioned by software company Pegasystems Inc. revealed the majority of drivers (63%) do not have active extended warranties despite seeing their value. That said, 60% agreed warranties provide value and 62% with active warranties reported benefitting from them within the past year. 

The biggest barriers to consumers purchasing a warranty were found to be: cost (35%), not thinking they need one (32%), and lack of availability at the time of purchase (29%).