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How extended car warranties work

With the median price ringing in at $1,200, is it worth it?

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Dawn Daniels
Updated .
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An extended car warranty can help protect your investment once the manufacturer’s warranty expires. They can get expensive though, and not everything from your original warranty will be covered.

What is an extended warranty for a car?

Extended warranties, also known as extended service plans, 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 — 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 one and three 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.

These scammers may tell you that your warranty is about to expire or try to scare you into purchasing a service contract. Never give out your personal or financial information to a stranger on the phone, and file a report with the FCC if you think you’ve been a victim of a potential scam.

How much does an extended car warranty cost?

The median cost of an extended warranty was just over $1,200, according to a 2013 Consumer Reports survey. 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.

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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.

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.

    Are there alternatives to an extended car warranty?

    Yes, if you’re on the fence about purchasing an extended warranty or service contract, you may want to consider mechanical breakdown insurance (MBI) instead. Some insurance companies will let you add this coverage onto your existing policy. It covers mechanical issues similar to what an extended warranty would cover, but you pay for it as part of your insurance premiums instead of a lump sum up front.

    And unlike extended warranties, MBI often covers all of the parts on your car — not just a limited list of potential problems.

    Lemon laws

    Even if you don’t have mechanical breakdown insurance or an extended warranty, you still have some protection against car defects. Nearly every state has lemon laws that entitles you to a refund or compensation if you purchase a new car with major defects. And some states even have laws that extend to used cars as well.

    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, 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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