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.
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:
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.
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Pros and cons
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.
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.
Five 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
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.
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.
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.
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 depending on what it doesn’t cover, so it’s a good idea to compare the costs against additional insurance coverage or paying for repairs yourself.
No, but scammers will sometimes pretend to be selling an extended warranty to get your information. To avoid getting scammed, never give out personal information to a cold caller, and thoroughly research any company you’re considering purchasing a warranty or service plan from.
No, most extended warranties won’t cover regular wear and tear.
No, getting an extended warranty is completely optional. Some salespeople may try to make it seem like a required purchase to get the sale, but you have the right to say no if you don’t want it.
Yes, most dealerships and third-party companies allow you to cancel it at any time to receive a prorated refund.
Dawn Daniels is a publisher with Finder, based out of Oregon. Her background includes editing more than 40 published books, including Financial Fitness: 21 Easy Exercises to Get Your Personal Finances in Shape Fast by Dr. Vi Scott. In her spare time, Dawn enjoys hiking ridiculous distances and collapsing in exhaustion.
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