Are Extended Car Warranties Ever Worth Buying?

You've probably considered whether you need an extended warranty after purchasing a new or used vehicle. Given the high cost of repairs, this is a topic worth considering: Is it worth purchasing extended car warranties? It mostly depends on what you're looking for, and the answer isn't always straightforward.

This blog post will go over the basics of extended car warranties:

Defines what extended car warranties are
Informs you of the essential things to consider
Mentions their pros and cons

Let's look a little deeper to find the answers you're looking for before going to the dealership. So, here's what you should know, what questions you should ask yourself, and what you should learn about extended warranties.

What Are Extended Car Warranties?

An extended car warranty, also known as a vehicle service contract, is an optional coverage that you can buy to cover mechanical breakdowns. These cover the cost of significant repairs or replacements for a specified number of years or miles. Most extended warranties begin when your vehicle's factory warranty expires, but there are times when the coverage may overlap. It’s also important to note that this type of warranty is defined similarly in various countries. Still, different companies cover certain repairs and mention different terms and conditions in their contracts.

While a car salesperson may try to sell you a policy at the closing table, don't be rushed; you can always get one later. "You don't have to buy an extended warranty on the day you buy the car," says Mark Friedlander, the director of corporate communications at the Insurance Information Institute. "You can buy it whenever you want until the original manufacturer's warranty expires” (1). Each extended warranty has its own set of terms and conditions. That's why it's critical to carefully read the fine print of a contract to understand what's covered (2).

What Things Do You Need to Consider?

When determining whether an extended car warranty is worthy, you must carefully examine the terms of each policy. Warranties can be challenging, so you must understand what you'd be paying for before deciding whether it's worth it to get an extended warranty.

The more comprehensive a car warranty is, it will cover more faults, including some wear and tear, but will be more expensive. You'd have to decide whether the extra cost is worth it or if it's cheaper to just pay for any repairs yourself if a problem arises.

Used car warranties are typically not as comprehensive as manufacturer's warranties. They may have more exclusions and stricter terms and conditions, so don't assume that your car will be covered for every mechanical or electrical failure.

It would be best if you also considered a policy's claims limit, which is the maximum amount that the warranty will payout for repairs, as well as the excess you must pay whenever you file a claim. This shows you how much you may still have to pay even if you have a warranty, which may help you decide whether it is worth paying for a warranty (3).

The table below shows its advantages and drawbacks to make it easier to decide whether it would be suitable for you to have an extended car warranty. The table below shows its pros and cons (4).

Pros	Cons
Saves money	More expensive than it is worth
Built-in maintenance fund	No coverage for essential repairs
Manufacturer supported	Limits the locations where you can get repairs
Fully customizable plans	Coverage that overlaps
Extra benefits such as roadside assistance	You may never need it
A method for increasing a car's resale value	Many customers have the experience that the contract costs more than the benefits they receive.

How Much Does an Extended Car Warranty Cost?

The cost of a warranty depends on how much coverage you want, the condition of your vehicle, the model, and the length of time you want the coverage to last. Because there are so many factors that determine your cost, many dealerships attempt to inflate the price of your warranty to make money. Here are a few pointers to help you avoid overspending.

Research other third-party and even manufacturer's deals to determine a reasonable price.
Manufacturer-backed warranties. Extended warranty offers from a dealer are typically more expensive than offers from an outside third party. However, this premium price may be worth paying. Extended warranties sold by a local dealer are frequently backed by the manufacturer. This ensures that OEM (original equipment manufacturer) parts are used in any repairs.
Decide before purchasing a vehicle. Before you go to the dealership to buy a vehicle, decide whether or not you want the extended warranty.
Take your time before signing a contract. An extended warranty can be purchased at any time before the original warranty expires.
Understand your vehicle. Your rates will be determined by the condition of your vehicle and its model, and year (5).

What Else Should You Know About Extended Car Warranties?

Even if a vehicle manufacturer directly offers it, the cost of adding an extended car warranty is negotiable. It's worth asking for a discount or shopping around for different warranty providers. However, it is entirely dependent on how low the warranty seller is willing to go.

Like new car warranties, extensions do not cover maintenance and wear items. An extended car warranty does not cover tire replacements, oil changes, and tune-ups. Internal engine and suspension components, as well as certain electronics, are typically covered (6).

Only by taking the time to learn about your options will you be able to determine if an extended warranty is suitable for your vehicle.

Alternatives to Extended Warranties

If an extended warranty isn't for you, a couple of other options could help ensure your vehicle's continued coverage.

Mechanical breakdown insurance, or MBI, is a type of coverage provided by insurance companies as an add-on to your existing auto insurance policy. An MBI coverage means coverage for unexpected repair bills caused by unfortunate electrical and mechanical failures to extend your car's insurance policy.

Mechanical breakdown insurance and extended warranties share many characteristics. For example:

Both provide coverage for repairs to specific parts and systems.
None of these programs will cover routine maintenance.

If you do not want to purchase an extended warranty, we recommend opening a separate savings account to cover unforeseen repairs and expenses (7).

Is an Extended Warranty Contract Right for You?

The answer depends on your financial situation, the car itself (in terms of reliability, age, and mileage), and the type of extended car warranty you choose. In the end, you should consider the pros and cons listed in the table above before making any decisions.