Extended Car Warranty: Do You Really Need One
Sitting in a dealerships business office as you sign off on your new car purchase is not the time to be wondering, Do I need an extended warranty?
Opting for the extended warranty largely varies depending on your personal needs, but it can be a great way to keep you protected from unexpected repairs or maintenance on your car. Saving money in an emergency might be worth the extra cost of the warranty.
Arming yourself with some research on those extras before heading to the dealership to buy will not only save you some money but will also keep you from regretting decisions you had to make on the fly.
Heres what you need to know, what you need to ask yourself, and what you need to find out about extended warranties before going to the dealership.
Is The Extended Warranty Worth It
An extended warranty can be a perk with new vehicles, but you should understand exactly what is covered and for how long. It may or may not be worth the extra cost. You are usually required to pay a deductible when you file a warranty claim and the more the plan covers the more it costs. Consumer Reports found that 55 percent of owners who purchased an extended warranty did not use it for repairs during the time of the policy. On average drivers paid over $1,200 for the coverage and those who did get repairs paid more for the warranty than what they saved in repair costs.
If you buy extended warranty on a new vehicle, it starts the day you buy the vehicle it will overlap with your no-charge factory warranty. If your factory warranty is five years, and the extended warranty is seven, it is only in effect for those two years.
Specialists suggest using the money you would spend on the extended warranty on a savings account that you can use if it is needed or buying a more reliable vehicle. If you want to purchase extended warranty, the price can be negotiated just like the price of your vehicle.
When Don’t You Need An Extended Warranty
An extended warranty can cost a lot of money, so you might think itâs not worth it if you never use it. But in reality, a large chunk of people use their extended warranty to get out of expensive situations. That said, beware of traditional dealers that negotiate on warranty prices. This likely means theyâre marking it up quite a bit and charging different people different markups.
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What To Look For In A Used Car Warranty
When you are shopping for a used car warranty in Colorado Springs, there are some things to look at. Consider this used car warranty checklist:
What The Extended Warranty Covers
Although extended warranty companies throw out phrases such as “comprehensive coverage” or “full coverage,” this isn’t always the case. Most often, covered repairs are limited to the fine print within the contract.
While this may cover mechanical breakdown and other big-ticket items, it won’t cover routine maintenance such as tire rotations or oil changes. To save yourself from surprises down the road, make sure to read every sentence of the fine print to see what your warranty covers.
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Statistics Behind Extended Car Warranty Use
The nature of warranties is that the business exists because the customer, on average, has negative expected value on their purchase. What this means is that for every 1000 dollars a customer puts in, they will on average get less than 1000 dollars back in compensation. Consumer Reports did a study on this in 2013 and found that 55 percent of extended warranty purchases did not claim anything in the duration of the warrantied period. The remaining 45 percent of car owners that did file a claim and receive repairs, on average, said that the amount they spent was less than the amount paid in their policy.
The fact is, the numbers say that it isnt worth it on average. However, not all cases and not all cars are made equal. There are considerations that need to be made like the previously discussed ability to pay and likelihood of incidence.
Pros Of An Extended Warranty
The biggest benefit of an extended warranty is that it can save you money if your car needs a costly repair thats covered under your contract. Instead of paying the entire bill out of pocket, youd only be responsible for covering the deductible and then the warranty provider would pay for the rest, so long as the issue is included in the service contract.
Having an extended warranty can also help provide peace of mind if worrying about how youll pay for a repair is something that will keep you up at night.
similar to your car insurance, Roberts says. We dont like to pay for it, but we certainly appreciate it when we need it.
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What Are The Pros Of Extended Car Warranties
Pro: Drive your car for longer.
Interested in keeping your car for a long time? Investing in an extended car warranty might be the best path to take. Expensive repairs can discourage you from driving a car you love, especially if those repairs interfere with the cars safety. But, its almost always more cost-effective to repair your car than buy a new one. Vehicle longevity is an important consideration when looking at the pros and cons of extended car warranties.
You might also want to consider your driving habits. Do you often find yourself in a repair shop because of flat tires or transmission issues? Repeated car troubles can add up quickly and push you to think of selling your vehicle. If youre able to make small monthly payments, extended warranties can give you peace of mind when on the road.
Pro: Put money back in your pocket when it comes to repairs.
According to AAA, drivers can expect to pay between $500 and $600 on an average repair bill. Additionally, AAAs studies show that annual repair costs increased by 8.9 percent between 2018 and 2019. With increasingly technologically advanced vehicles, repairs not only stem from mechanical issues like water pumps and flat tires but also computer systems. When electing to buy an extended warranty, consider your cars sophistication and make sure youre choosing the right warranty.
Pro: Choose the coverage you need.
How To Purchase An Extended Warranty
There are many different options for car warranties. Sometimes it can be challenging to choose the right one. Approach buying an extended car warranty in the same way that you would buy car insurance. Ask for different quotes and compare the details to make sure you get what you want.
You have to consider what you want to cover in terms of the vehicle. Each extended warranty is different, and they all have additional limitations and exclusions. For example, you may have a roof leak on your car, but the rubber gasket may not be covered. You must read the policy and understand what is in the fine print to find out.
If most of the reviews are negative for a particular auto warranty provider, you should steer clear of this business. Dont be fooled by reviews on company websites because they always post the best. Visit sites like Google Reviews, TrustPilot, or Yelp for the most honest reviews. Pay attention to customer experience reports because if you see many people struggling to communicate with them, you can expect trouble too. Moreover, you can always learn more.
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Whats The Difference Between A Car Warranty And Insurance
Car insurance and car warranty are two different types of protection. A car warranty is designed to cover mechanical issues and labour on your vehicle caused by defects or issues with parts. Car insurance on the other hand, will cover the costs of repairing your vehicle if it is damaged in a collision, natural disaster, fire, or theft.
Car warranty can be negotiated at the manufacturer, while insurance is handled by an insurer. Even though both have specific areas of coverage, one should not be ignored over the other.
Driving without insurance is illegal, but car warranty is by choice. Insurance will not pay for your car breaking down or mechanical issues, but there are various types of premiums to cover your driving habits.
Whats Next: Making A Purchase
Explore your options to see whats available. Many companies will allow you to build a custom warranty package to fit your needs. If youre buying from a dealer, ask them about the options that are available to you. Check out Chevrolets Extended Limited Warranty for an example of what you can expect.
If buying from a third party, check online reviews. The more you know, the better your investment should be. Many times, posting a question on social media asking for suggestions will bring a wealth of information. Also check out consumer protection websites.
Finally, avoid succumbing to high-pressure sales tactics. If it sounds too good to be true, it probably is.
If you have questions about this story, please contact us at
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Reduce Your Risk Regardless
Universally, vehicles are machines made out of parts and components that can and will eventually wear down, break, and require replacement or repair. This is part of owning a vehicle.
No warranty will cover each and every part of your vehicle that may ever cost you money, and not all extended warranty coverage is created equal. Also, remember that the way a used vehicle was cared for and maintained by past owners is arguably a better indicator of its long-term reliability than the badge on its hood, or the country where it was built.
The gist? Though extended warranties may be money well spent, proper, regular, and timely maintenance and inspections and ensuring that previous owners have done so as well can help reduce your ongoing costs, and extend the life of the vehicle too.
What Is An Extended Warranty On A Car
An extended car warranty, also called a vehicle service contract or aftermarket car warranty, is an optional service plan that helps cover the cost of certain car repairs or part replacements. An extended service plan usually takes effect after your manufacturers factory warranty has expired, though the two warranties sometimes overlap.
The main difference between a manufacturers warranty and an extended auto warranty is that a manufacturers warranty is included at the time of a vehicle’s sale. Extended car warranties, on the other hand, cost an additional fee.
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Average Car Repair Costs
Understanding the cost of common repairs can help you decide if an extended warranty is a good idea. While the model and type of vehicle you have will significantly influence the price of repairs, the bottom line is that repairs are almost inevitable with any vehicle.
Hereâs an example of average repair costs for two top-selling models: the Mercedes GLC300 and Toyota Camry:
Mercedes GLC300
- Wheel Hub Assembly Replacement: $681
- Timing Belt Replacement: $666
- Average Annual Repair Cost: $1,137
Toyota Camry
- Wheel Hub Assembly Replacement: $602
- Timing Belt Replacement: $385
- Average Annual Repair Cost: $552
Any way you slice it, repairs arenât cheap. Itâs also worth noting that vehicles today with electronic systems are better candidates for extended warranty as these tend to break and can be costly to fix.
What Should I Look Out For
The range of warranty products available is wide, and you need to make sure that youre comparing like for like, as well as that the products youre considering will be suitable. There are three key phrases that you need to understand and watch out for in your extended warranty contract: betterment, consequential failure and wear and tear.
Betterment means that if your car requires a new part to get it up and running again, some warranty providers will send you a bill, because the new part is better than the original one and, as such, has increased the value of the car. If that part is a new engine or gearbox, it could leave you facing a bill for thousands of pounds. Make sure you understand the warranty providers position on betterment before you sign anything.
A consequential failure is when a part that is covered by your warranty fails and also causes the failure of another part that isnt covered. Some providers will make you pay for repairing the parts not explicitly covered by the warranty.
As for wear and tear, no warranty provider can cover all consumables even the more comprehensive ones dont cover things like batteries, brake pads and clutch plates but wed strongly recommend that you choose a policy that includes cover for various other items that are likely to wear out or fail over time. Make sure you understand what level of wear and tear cover it offers up front.
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Choosing An Extended Warranty
Most warranty providers offer coverage tiers from which you can choose depending on your needs. If you have money set aside for general repairs but dont want to pay thousands of dollars to fix a seized engine, you can choose a basic powertrain warranty. If you feel you need the convenience of the entire package, you can opt for a plan that includes 24-hour road assistance and paid alternative transportation.
Before you buy your extended warranty of choice, go through the contract and understand the warranty’s levels of coverage — and more importantly what it doesn’t cover, who it authorizes to repair your car, if there is a deductible, and how much that is and whether the warranty is transferable. Find out if the warranty is still in force once your car becomes a high-mileage vehicle. Ensure it covers both part replacements and labor costs and, at the minimum, repairs to the transmission, engine, front and rear axles, and all-wheel-drive or four-wheel-drive system if equipped.
Some contracts specify the facilities that will repair your car. Some may stipulate that only the dealership that sold you the car can fix it or that you have to choose a repair shop in a specific network.
If that is the case, and you intend to move to another state where you may not access the specified repair facilities, you may end up with an extended warranty that you never use.
How Long Will The Coverage Last
If you plan to hang onto your car for several more years, purchase an extended warranty that will cover your vehicle for a longer period of time. Typically, auto extended warranties last anywhere between two to seven years.
Dont worry if you purchase a longer plan and decide to sell your car, though most extended warranties are transferable.
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What Are The Drawbacks Of Extended Warranties
When it comes to the long-term cost of your car, extended warranties are generally a bad deal, says Gillis. In a Consumer Reports survey, 55% of people who purchased an extended warranty never touched it. Among those who did use the warranty, most saved less on repairs than they paid for the contract.
Other drawbacks include:
- Overlap: You might not need the extended warranty if youre already covered through the manufacturers warranty or a mechanical breakdown insurance policy. In that case, the extra coverage is not worth the cost, Gillis says.
- Exclusions: Every contract comes with fine print that specifies how you can use the warranty. For example, the provider might deny coverage for problems caused by normal wear and tear or reduce the claim payout based on your cars depreciation.
- Extra costs: Some extended warranties cover a portion of the repair bill. Youll have to cover the rest, plus a deductible.
- Limitations: Instead of choosing your own mechanic to fix your car, you might have to bring it to a warranty-approved shop.
- Sunk cost: In a Consumer Reports survey, 55% of respondents who bought an extended warranty didnt wind up using it.
Is Extended Warranty Worth It
Unlike the past where the answer was extended warranty is never worth it, the answer these days is it depends. The two primary factors to consider is something we call ability to pay and likelihood of incidence. These two considerations are mutually exclusive and weighed together can give you the answer on whether or not extended warranty is worth it for you.
The consideration of ability to pay, takes into account your personal finances and whether or not issues down the road will leave you with a problem that can only be solved with a payment you cannot afford. For instance, if there are transmission issues on a used car you purchased last year, you need to be able to fix it otherwise your car is both unusable and unsellable. Transmission repairs average out at approximately $5000 dollars. While this is a worst case scenario, it is important to understand the concept of ability to pay when deciding whether or not you will opt for extended warranty. Extended warranty while it may be a net loss on average for most car owners, might be worth it for you when you cannot afford the downside.
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