Should You Buy An Extended Car Warranty?

Short of a home, buying a car is probably the largest single purchase most people will ever make. It’s a big investment and like most things of value, we want to protect it in the long term, but is purchasing an extended warranty the way to do it?  

Let’s take a closer look at what an extended warranty is, what it covers and whether or not you should buy one, either as an addition to your existing vehicle or when purchasing your next one. 

What is an Extended Warranty?

To put it simply, an extended warranty, sometimes called a vehicle service contract (although they’re not always exactly the same thing), is a supplemental service plan that covers a specific set of repairs that could arise as a part of vehicle ownership. 

Warranties are designed to cover the costs of unexpected repairs and vehicle-related expenses. Vehicle service contracts cover the costs of expected maintenance and effectively pre-pay those costs at a low rate than may be charged in the future. The terms are often used interchangeably because most warranties are a promise by the warranty company to pay for services in exchange for the up-front purchase of the policy.

These types of coverage are most often purchased by buyers that intend to own a vehicle beyond the length of the standard factory warranty or for a used vehicle that is already out of warranty. It is an entirely separate coverage package and is purchased separately from the factory warranty that comes with a new vehicle. 

While a pure warranty comes only from the factory, extended warranties can be sold by a dealership, a manufacturer or another third party in varying lengths and coverages. The coverage can be purchased in full outright or in monthly payments looped into the monthly costs of vehicle ownership. 

According to the Federal Trade Commission, it is a smart move to check out the reputation of your provider with your state’s consumer protection office to ensure that you have chosen a reputable company to do extended business with. You can verify that data here, but we’ve also researched some of these providers and made a list of some of the best.

What Does an Extended Warranty Cover? 

Extended warranties are not quite the same as new-car warranties, and they can be byzantine to decipher. Because there is no regulating rule specifying exactly what must be contained within an extended warranty or vehicle service contract, the guidelines, coverages and terms vary wildly from state to state and by service provider. 

As a result, it is vital that you read the fine print, do the research and ask any questions that you may need clarification on before you sign the contract.

Typically, an extended warranty covers all or a portion of a specific set of repairs that arise after the original factory warranty has expired. Since this contract is purchased separately, the length, coverages and terms are often negotiable. It is in the buyer’s best interest to choose a plan that meets their needs, for the length of time that they plan on owning the vehicle and covers the repairs and systems that they deem necessary.

Repairs to major part systems like the engine, transmission and powertrain are typically covered. Also, the entire cost or a portion of the costs associated with towing and renting a vehicle during the time that repairs are being made is also usually covered. But things like routine oil changes, fluid and tire replacement are most often not. 

Also, quite often when a vehicle is still within the term of its factory warranty, the coverages provided in the extended warranty overlap with those provided by the factory, thus making it an unneeded expense. Be sure to read the fine print on the length of time that rental cars are guaranteed for and what the deductibles might be. 

Also be sure to determine whether or not, you as the buyer will have to pay upfront for and wait for reimbursement for services or whether the costs are covered directly through your plan. The hassle of reimbursement might make a potential plan much more difficult to use.

What Common Factors Can Invalidate an Extended Warranty?

Most extended warranty plans have a very specific set of circumstances in which payment will be made and claims will be accepted. These are most often listed in a section labeled “Driver Responsibility” or “Buyer Responsibilities.” 

They will detail your responsibilities as a buyer and will clearly state what you need to do and how you need to do it in order to receive and maintain coverage. Typically, these types of plans require that you adhere to the vehicle’s regularly scheduled maintenance plan like clockwork on the timeline suggested by your car’s manufacturer. 

For example, if you choose not to get your oil changed regularly and then the engine has suddenly developed a new sound that needs to be checked out, the ensuing repairs would not be covered. Modifying your vehicle can also result in your policy becoming inactive. 

Also, if you choose to use your vehicle for commercial purposes like driving for a food delivery service or delivering packages, you will invalidate your service plan. There are some specialized extended warranties and service contracts for gig drivers, but they are still a very new idea for most insurers and warranty providers. Check the fine print first!

Note that repairs that arise as a result of regular wear and tear or due the failure to abide by the routine maintenance plan are generally not going to result in your claim being honored. It is also important to mention that in the case of a used vehicle, issues that are defined as ‘pre-existing,’ such as issues caused by prior accident damage, will not be covered under a new extended warranty plan.

Should You Buy an Extended Warranty Plan?

It depends your need and vehicle choices, so there isn’t one clear-cut answer for everyone. First, you should check on the status of your factory warranty, though if your car is over 6 years old, chances are good you’re out of coverage.

If you plan to keep your car for a long time and are prepared to monitor your mileage and maintenance, abide by the terms and conditions of the contract and will refrain from modifying it, then it can be a smart option for you and your wallet.

If you have your own “in case of emergency” vehicle repair fund or have a tendency to obtain vehicle maintenance on your own timeline, an extended warranty might not be for you. Similarly, if you want to modify your vehicle or do your own maintenance at home, it’s also not a good choice. Gig driving is another gray area, but there are some extended service and warranty products made for this type of operation. 

As with everything else about warranties, read the fine print and verify any details you’re unclear about before you sign on the dotted line.