Are Extended Car Warranties Worth It? What You Need To Know

An extended warranty covers some major repairs for your car when your manufacturer's warranty expires. Some people choose to get one that runs concurrently with the manufacturer's warranty, while others get one after purchasing a used car just so they get that extra layer of protection. In theory, it's a sound investment that ensures you're not left vulnerable when your car breaks down unexpectedly.

However, an extended warranty isn't for everyone. According to a recent study by Consumer Affairs, while nearly 50% of car owners in the U.S. hold an extended warranty, only about 10% actually end up using it. In a separate survey conducted by Consumer Reports, more than 70% of the participants said they won't be repurchasing an extended warranty anytime soon.

If you're considering getting one for your car, you first need to understand what the warranty actually covers, and whether it's the right fit for your needs. With that information, you can make an informed decision about whether or not an extended warranty is worth your money.

First, you need to understand that an extended warranty is not the same as a manufacturer's warranty. When you buy a new car, auto manufacturers typically offer a warranty that covers the cost of certain problems your car might have down the line. This manufacturer's warranty lasts for a specific period, and may expire after you've hit a certain number of miles. However, this warranty won't cover the cost of routine maintenance or issues that occur because of driver negligence.

An extended warranty, also called a service contract, is essentially an additional cover that you can get from a dealership at an extra charge. It also doesn't cover the cost of routine maintenance, but provides an extra layer of protection for certain services that the manufacturer's warranty doesn't cover. That's if you choose to get it while your manufacturer's warranty is still running. Some people choose to get an extended warranty after their manufacturer's warranty expires or when they purchase a used car so they don't have to pay for unexpected repairs out of pocket.

There are different types of extended warranties, and each one offers different levels of coverage. The most comprehensive option is the bumper-to-bumper warranty, which covers repairs for nearly every part of your car between the front and rear bumpers. While this warranty takes care of defects in major mechanical parts like the engine, transmission, and suspension, it typically excludes parts subject to regular wear and tear, like brake pads, brake lights, or the catalytic converter.

Other warranties target specific concerns. For instance, a corrosion warranty focuses on rust and corrosion that may affect your car's body panels, making it a practical choice for car owners who live by the sea or drive on roads often gritted during winter. It's important you carefully review the fine print of any extended warranty plan a dealership offers to you and make sure it fully caters to your specific needs. Depending on which type of extended warranty you choose, you may avoid paying out of pocket for certain repairs, provided you've not been negligent about routine maintenance.

Aside from helping you cover the costs of repairs, some warranties really go the extra mile to make sure you're not left stranded or vulnerable. If you find yourself stuck on the road due to a flat tire, an empty tank, or a dead battery, certain warranties may include roadside assistance. If the issue can't be resolved on the spot, some plans might cover the cost of towing your vehicle to a repair shop. Additionally, if your trip is interrupted by a breakdown, some warranties may even cover the expense of a rental car, though there may be conditions, such as using a specific service shop or selecting a mechanic within your warranty's network.

You have two main options for buying an extended car warranty: a dealership, or a third-party provider. When you buy an extended warranty from a dealership — typically, at the time you're paying for the car — you're paying a little extra for coverage that's backed by the car's manufacturer. This means any repairs will be done by certified technicians using original parts. If you like the idea of your car being in the hands of experts who know its make and model inside out, this can feel very reassuring. Plus, if you ever decide to sell your car, having this kind of warranty could increase its resale value.

On the other hand, third-party warranties are relatively cheaper and offer more flexibility. First, you can purchase one at any time, and you have more choices when it comes to the level of coverage. You can also have your car serviced at any certified service shop, which can be a huge advantage if you don't live very close to the dealership.

Of course, there are some trade-offs. With third-party warranties, there's no guarantee the mechanic will use original manufacturer parts to repair your car. Additionally, the claims process might require you to pay for repairs upfront and wait for reimbursement, which can be time-consuming. You might be able to transfer a third-party warranty when you sell your car, but it might come with a transfer fee, which may dissuade potential buyers.

An extended warranty usually comes with a list of approved repair shops and mechanics to make sure your car is in good hands. These professionals meet the standards set by the warranty provider, but if you decide to take your car to a repair shop outside this network, the warranty provider might not cover the costs. Even if they do, the coverage might be limited, and you could end up paying a big chunk of repair costs out of pocket.

Another reason people often lose their warranty coverage is by skipping routine maintenance. Simple tasks like changing the oil and rotating the tires regularly help keep your car in good shape. If you don't keep up with these, the warranty provider might refuse to cover the cost of repairs that could have been avoided.

Vehicle modifications can also get tricky with warranties. Customizing your car with aftermarket parts or performance upgrades might seem like a cool choice, but it can void your warranty. These changes can affect how your car runs and might cause damage the manufacturer didn't plan for. To the warranty provider, any deliberate tampering with the car's original design may void your coverage.

It's also important to remember that an extended warranty isn't the same as car insurance. Don't think of an extended warranty as a substitute for a car insurance policy. An extended warranty focuses on fixing or replacing parts that wear out after the manufacturer's warranty ends. So, if your car is in a serious accident or damaged in a flood or storm, the warranty might not provide cover. Drive carefully, keep up with regular maintenance, and avoid modifications that might void your coverage. Also, make sure you understand what exactly the warranty you're paying for covers.

Providers often push hard to sell you an extended warranty, often with scary stories about how expensive repairs can be. It's true that replacing a part like an engine or transmission can be expensive. However, the question then becomes: Is the amount you pay for the extended warranty worth it?

Remember that extended warranties are a big source of revenue for these companies. According to Consumers' Checkbook, companies keep up to 70% of the cost, making them much more profitable than you might think. This is partly because many people overestimate the likelihood of something going wrong with their car.

Instead of spending money on a warranty, you might be better off investing in a more reliable car brand from the start. Interestingly, in a survey Consumer Reports conducted, people who buy less reliable brands tend to be the most satisfied with their extended warranties, mostly because they're more likely to use them. On the other hand, owners of cars from reliable brands like Toyota and Honda often find they never needed the warranty at all.

When buying a car, don't feel pressured to get an extended warranty right away. Take your time, and don't be afraid to negotiate. You can also shop around for better deals — you don't have to buy an extended warranty from the dealership. Sometimes, you can find better offers through a third-party provider. Just be sure to read the fine print carefully to know exactly what you're getting into.