Extended Car Warranties - How Do They Work? | Finder Canada

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How extended car warranties work

With the average price ringing in between $1,000 to $2,000, is an extended warranty worth it?

An extended warranty covers repairs after your manufacturer warranty runs out. Weighing the pros and cons can help you decide if it’s right for you before you add another couple thousand dollars to your car purchase.

What is an extended warranty for a car?

Extended warranties, also known as vehicle service contracts, cover manufacturer defects and specific issues on new or used cars after your original warranty expires.

When you purchase a new car, the manufacturer will generally issue a warranty to guarantee the car won’t break down within an agreed-upon period of time – usually up to 3 years or 60,000 km – and that you won’t have to cover the cost if it does. These warranties are limited and generally only last a few years. An extended warranty covers you for a certain amount of time or number of miles after your limited warranty expires. The typical time of extension is between 4 and 7 years.

Extended warranties can be offered directly by a car manufacturer or by a third party. While third-party warranties can sometimes be cheaper, you could be putting yourself at risk if you purchase a warranty from a company that isn’t trustworthy.

  • Extended warranty scams

Some scammers will call car owners claiming to be representatives of a car dealership or manufacturer and try to sell you an extended warranty in an attempt to get your personal information. These callers may know your name, address and even your car’s make and model, making them seem legitimate.

Is a car extended warranty worth it?

If you’re like most people, you probably won’t use an extended car warranty. And even if you do use it, it’s unlikely you’ll get the full value out of it.

Many car owners don’t end up using their extended warranties despite the high price tag, according to a Consumer Reports survey. And sometimes repairs and maintenance covered by an extended warranty don’t end up making up for the initial cost. In fact, after receiving multiple complaints, the Better Business Bureau actually warned drivers to be cautious when deciding whether to purchase an extended vehicle warranty.

But the numbers depend on your car. When determining if you need an extended warranty, check your car’s reliability rating and its average repair costs. If it looks like you might actually use your extended warranty — and save money overall — it might be worth investing in one.

Looking to cancel your car’s extended warranty? Head over to our guide

3 questions to ask before getting an extended car warranty

Compare the potential savings against the risks by asking yourself these three questions before saying yes to an extended car warranty:

1. How likely is it my car will need repairs?

When researching potential cars, look up reliability ratings. If you opt for a car rated as more reliable, you may be able to skip out on an extended warranty without too much regret. But if the car you’re purchasing is known to need frequent mechanical repairs, then an extended warranty could help you save in the long run.

2. How much will it add to the total cost of my car?

Extended warranties don’t come cheap, with many priced in the $1,000 to $3,000 range. If you choose to roll the cost in with your car loan, you’ll have to pay interest on that amount. This may only be a few extra dollars a month, but over the life of your loan, it could be hundreds.

Since you typically have a few years to purchase an extended car warranty, it may be smart to hold off on buying it and create a savings account to cover the amount. If you go with a high-yield savings account, you could even make money in the process.

3. What is the deductible policy?

Every extended car warranty has its own deductible structure. Some charge per repair, others per service visit. This means you could still pay $100 or more out of pocket when you bring your car to the mechanic. If you don’t have a repair extensive enough to even meet the cost of the deductible, you may find that you don’t get much — if any — use out of your extended warranty.

How much does an extended car warranty cost?

The average cost of an extended warranty is usually between $1,000 and $2,000. However, how much you ultimately pay depends on your car manufacturer and whether you purchase it through an authorized dealership or a third-party warranty company.

How can I pay for an extended car warranty?

You have three options when it comes time to purchase an extended car warranty:

  • Roll it in to your car loan. While this is the most affordable option in the short term, it’s the most expensive in the long run since you’ll be paying interest on the warranty.
  • Pay for it up front. If you have the cash on hand and can swing it, this is the most cost-effective option.
  • Save up and purchase it down the road. You can often buy an extended warranty at any time as long as your car doesn’t have outrageously high mileage. If you don’t have the money available today, you can save up to purchase the warranty later on.

Pros and cons

Pros

  • Added guarantee. An extended warranty can give you an additional safeguard while you’re paying off your vehicle.
  • Available for used or new car. Extended warranties are available for both new and used vehicles depending on the age and condition of the car.

Cons

  • Not everything is covered. Not all parts of your car will be covered by the warranty.
  • Expensive. Extended warranties can cost over a thousand dollars — and 55% of owners who purchased one didn’t use it for repairs during the lifetime of the policy, according to Consumer Reports.

5 common exclusions with extended car warranties

Extended warranties are generally separate from a manufacturer warranty on a new car, which means that not everything from your original warranty will be covered.

Typical exclusions for extended warranties include:

  • Wear and tear
  • Car modifications
  • Damage caused by installing aftermarket parts
  • Defects that result from misuse of the vehicle, such as overheating or lack of oil
  • Certain parts specified in the policy

You may also need to prove that you’ve taken proper care of the vehicle in order for a repair to be covered, and some warranties may come with deductibles or coverage caps.

Where can I get an extended warranty?

Most manufacturers offer extended warranties, as well as third-party companies that work through dealerships and financing companies.

Manufacturers

A manufacturer extended warranty is typically more expensive, but it comes with a few benefits. Not only will it be easier to get a component covered, you’re more likely to receive genuine parts. Manufacturers are also more likely to approve repairs more quickly.

Third-party companies

A third-party extended warranty often comes with a lower price tag. But the downside is that they tend to have higher deductibles and won’t cover extensive repairs. You may also have to visit a specific mechanic or settle for aftermarket or refurbished parts. If you’re buying a used car, a third-party extended warranty may be the only choice you have.

How to choose an extended warranty

To find a trustworthy extended warranty that fits your needs, follow these five steps:

  • Research the provider. Whether you’re using a car manufacturer or a third party, start by checking online reviews and talking to people you know who’ve purchased a similar warranty to find out if the provider is trustworthy and easy to work with.
  • Check the terms of the warranty. Check what parts are covered, what’s not covered and whether there are any limits or deductibles.
  • Get everything in writing. If a salesperson tries to convince you that a warranty is perfect and all you need to do is sign, walk away. Get every promise down in writing — and take time to read through any contracts.
  • Compare costs. Compare extended warranty coverage from the manufacturer and several third parties to find the best deal available to you.
  • Decide how you want to pay. If you’re paying for your car with a loan, some lenders will let you roll in the cost of an extended warranty. But keep in mind that you’ll end up paying interest on it.

Lemon laws

While “lemon laws” don’t explicitly exist in Canada, you still have some protection against car defects even without an extended warranty. The Canadian Motor Vehicle Arbitration Plan (CAMVAP) is an auto program that provides arbitration between a car owners and manufactures. Participating in this program, however, means that you pretty much give up your right to go to court and the arbitrator’s ruling is binding. If the arbitrator rules your favour, the manufacturer will buy back the vehicle or pay to repair it.

Can I get an extended warranty on a used car?

Yes, but it may not be necessary if you’re buying a newer used car or a certified preowned (CPO) car with its own warranty. Many manufacturers allow their warranties to be transferred to a second driver, which means a newer car with low mileage may still be under the same warranty as when it was first purchased.

But if your car is older or the original warranty wasn’t transferable, then it may be worth looking into an extended warranty.

What other warranties can I purchase for a new car?

Beyond an extended warranty, dealerships and manufacturers offer a few other warranty programs to help keep you covered. These aren’t always the best deal, though. Before you take the plunge, compare the costs against the likelihood that they’ll actually be used.

  • Roadside assistance. Roadside assistance is one of the most popular additions to any car purchase, but that means you have plenty of options to choose from. Check your insurance policy and loan contract to see if it’s already included before you pay for coverage you already have.
  • Rust or corrosion warranty. Unless you’re buying a much older car, this may not be worth it. Many manufacturers offer standard rust and corrosion warranties that last up to a decade — no matter how many times the car has changed hands. Check your car’s original warranty to see if you’re already covered before purchasing this add-on.
  • Emissions warranty. Some manufacturers are beginning to include this with their standard warranties, but it may still be treated as additional coverage by dealerships. This type of warranty can help ensure your car meets the EPA standards for emissions, though you’ll want to check what specific defects are covered before you purchase it.

Some of these warranties may even come standard with some manufacturers.

Bottom line

An extended warranty can help protect your investment and get you back on the road if your car breaks down, but it can be pricey and may not be worth the cost, so it’s a good idea to compare the costs against additional insurance coverage or paying for repairs yourself.

Learn more about the ins and outs of getting a car with our car buying guide.

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