For many Americans, car ownership is the second largest single expense after housing. The easy-to-calculate expenses include monthly payments, insurance and scheduled maintenance costs. Other bills, including unexpected repairs, can be difficult to plan for.
Buying an extended warranty or an extended service contract can eliminate some of the guesswork. However, extended warranties have their limitations, and the price is sometimes higher than the cost of the repairs that are covered.
What Is an Extended Warranty?
An extended limited warranty or extended service contract picks up where a factory warranty stops. It can last from a few months to several years.
What Does an Extended Warranty Cost?
An extended warranty typically costs between $500 and $2,000 in total, but that varies widely based on where you buy them, the reliability of vehicle being covered, and more. The price of an extended warranty is also negotiable.
Pros & Cons of an Extended Warranty
Pro: An Extended Warranty Can Provide Peace of Mind
Many buyers argue that having an extended warranty on a used car brings them “peace of mind.” We won’t argue. Having an extended warranty can provide a safety net for the unknown.
For example, some observers suggest simply putting the money you’d spend on the extended warranty into a savings account and dipping into it as needed. They argue that if you don’t need it, you can use that money toward your next car.
In reality, those savings might not cover an unexpected repair. If a transmission starts slipping after six months, the $600 in the savings account may not be enough.
Con: Extended Warranties Can Cost You a Lot of Money …
Extended warranties aren’t cheap, and you have to pay up front for the coverage. They can save you hundreds, even thousands of dollars … if you actually use them. But if your vehicle does not require any of the covered repairs during the warranty period, you will have spent hundreds or thousands of dollars without any tangible benefit.
Reminder: The price of an extended warranty is negotiable. Don’t assume that the first price offered will be the price you have to pay.
Pro: … But They Can Save You Money
Replacing a car’s transmission can run into the thousands of dollars. Rebuilding certain engines can cost even more. Buying a product like a limited powertrain warranty can reduce this cost significantly if the vehicle develops problems during the covered period that are covered by the extended warranty.
A Used Car May Still Have Its Original Warranty
New cars come with a warranty with a minimum of three years or 36,000 miles of bumper-to-bumper coverage, whichever comes first. Under that warranty, if anything on the car breaks down, it will be repaired by the manufacturer.
It’s important to note that the bumper-to-bumper warranty does not cover what’s known as consumables. Normal wear and tear to tires, brakes and wiper blades, among other items, are the responsibility of the car’s owner.
A second, typically longer, “powertrain” warranty covers the engine, transmission and drivetrain.
If you buy a used car within its original warranty period, the warranty usually transfers to you. Most certified pre-owned (CPO) cars also come with an extended warranty.
Owners should note that warranties are limited, and it’s possible for owners to void their car’s warranty. If they modify the vehicle or neglect required maintenance, they could wind up losing the manufacturer’s promised repair policies.
The pricing varies because the expected likelihood of repairs often varies. A relatively inexpensive, low-mileage car that’s historically known for reliability will be less expensive to cover than a higher-mileage luxury vehicle loaded with electronics that has earned a reputation for breaking down.
The bottom line: Remember that the company offering the warranty has done an extensive analysis to ensure that it makes money on your warranty. Your car may soon need a new engine, but 10 others of the same make and model might never require as much a single bolt to be turned beyond regular maintenance.
Manufacturer Warranties vs. Third-Party Warranties
The hard truth is that not all extended service contracts are created equal.
Warranties from the automaker can be purchased at the dealer and even added into the financing cost of a used vehicle. They typically allow the owner to get the vehicle serviced at any of the brand’s dealerships.
On the other hand, third-party warranties can have a much smaller network of repair facilities, and they may not require the shops doing the repairs to be certified by the automaker, or for mechanics to use original manufacturer parts.
Get the specifics of the warranty in writing and study the documents before making your decision.
Extended Warranty vs. Maintenance Agreement
One important note: An extended service contract is not the same as a maintenance agreement. A maintenance agreement is essentially prepaying for known vehicle maintenance at set intervals.
So Should I Get a Used Car Warranty or Not?
We can’t predict the future, but this same basic principle applies to every warranty purchase decision: Do research on your particular car before investigating extended warranty options. If your car has a track record of expensive repairs, an extended warranty can make sense. Get the car’s vehicle identification number and get a Carfax Vehicle History Report to see if any of the problems (or recall work) have been fixed.
Even if you buy a historically reliable vehicle, there is always a chance that the unusual can happen. If having a warranty helps alleviate that stress, then by all means shop around for a good warranty plan.
What’s Next: Making a Purchase
Explore your options to see what’s available. Many companies will allow you to build a custom warranty package to fit your needs. If you’re buying from a dealer, ask them about the options that are available to you. Check out Chevrolet’s 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.