Extended car warranties cover repairs after the manufacturer’s standard warranty expires. You could think of it as insurance against a big unexpected repair bill, or as an auto service contract (which they’re often also called). Either way you’re trading unknown costs for a fixed known cost. Just keep in mind that it’s not the same as car liability and collision insurance.
You can purchase an extended auto warranty at the car dealership or separately through an independent company, called a “third party.” If you purchase at the dealership it’s generally recommended that you make sure the contract is directly from the manufacturer rather than any third party provider. If you’re looking to cover a used vehicle you only options are likely to be 3rd parties. And keep in mind that coverage will be much more expensive for older vehicles.
TIP: If you purchase an extended warranty at the dealership, negotiate that after you’ve negotiated a price but before you’ve signed any paperwork.
There’s a wide variety of plans. Most have 5-year / 100,000 mile terms (whichever comes first), although some go to 250,000 miles. Most include roadside assistance and some a rental car. Some service plans include routine maintenance and even new tire coverage. Some can be transferred to new owners, others can’t.
You might think that “bumper to bumper” warranties are going to cover everything. But read the fine print! There should be specific lists of what’s covered and what’s excluded, as well as clear terms and conditions. Lesser plans are often filled with loopholes to avoid paying out for necessary repairs.
Many warranties require you to use a more expensive dealership or particular garages in their network. While others let you take your vehicle to any ASE-certified mechanic
TIP: Like regular auto liability, collision, and theft insurance there’s usually a deductible. Some experts recommend keeping that below $200 otherwise you could still face an unexpected cash-flow problem.
Are Extended Car Warranties Worth It?
Keep in mind that it’s been reported that roughly half of buyers never actually use the warranty. But that’s not a flat-out reason not to have a service contract. Peace of mind and cost control are good reasons to purchase an extended auto warranty.
It helps to think about it as insurance. Any company has to make money, so you will pay more than repairs cost on average. The point is to protect against problems costing way above average. You can budget scheduled maintenance and new tires, but paying to have a transmission replaced can be a big problem.
It’s usually not a clear-cut decision. Some experts suggest that it’s a better investment to have an independent mechanic inspect a used vehicle before purchasing it, and to stay fully up to date on all scheduled maintenance for both new and used vehicles.
TIP: If you’re being told horror stories or feel pressured into buying, it’s time to walk away until you can dig into the details and make an informed decision.
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