Extended Warranties: What to Know Before You Buy

Article summary

• An extended car warranty is an optional add-on that covers repairs beyond the expiration of your factory warranty, offered by either the vehicle manufacturer or a third party for a specific period of time or mileage.
• Extended warranties typically cost between $1,300 to $4,000 or more and are worth considering if you plan to keep your car for a long time or drive beyond 80,000 miles—otherwise, they may not make financial sense.
• Before purchasing an extended warranty, review all documents carefully, paying close attention to the deductible, covered service locations and level of coverage to avoid gaps or overlaps with your existing factory warranty.

When buying a new or used car, you may be presented with the option to purchase an extended warranty during the closing phase of your deal. And even if you decide against an extended warranty at the time of your vehicle purchase, you can still purchase one several years later. The questions many people ask include: When does purchasing an extended car warranty make sense? How do they work? And how much is an extended warranty going to cost or save me in the long run?

What is an extended car warranty?

All new cars come with a manufacturer or factory warranty, which is included in the purchase price and typically features a "bumper-to-bumper" policy for 3 years/36,000 miles. An extended warranty, however, is an optional add-on that covers you for repairs and maintenance beyond the expiration date of the factory warranty.

Offered by either a vehicle manufacturer or a third party, extended warranties cover certain car repairs for a specific period of time or for a certain number of miles. These warranties provide peace of mind by protecting you from high repair costs that you might otherwise have to pay out-of-pocket. 

Extended warranties for used cars

If purchasing an extended warranty for a used car, be aware that your warranty may come with a waiting period or an exclusion of coverage for pre-existing conditions. One exception can occur for certified pre-owned cars, where the dealer certifies their cars to meet certain standards and may include extended warranties to uphold these standards.

How extended warranties work

No two extended warranties are alike, so it’s important to understand the nuances of how your extended car warranty works.
If you have a warranty from a third-party company, you’ll likely be able to use your warranty at any repair shop with certified technicians. Conversely, if you have an extended warranty from a manufacturer, you’ll probably be required to use the nearest licensed dealership. 

Once you arrive at the shop, be sure to do the following:

• Let the shop know you have a warranty
• Wait for diagnosis and pre-authorization from your warranty provider; once the shop obtains pre-authorization, it can complete the repairs
• Pay the deductible; the shop should never charge you more than the deductible amount if you have an extended warranty.

Is an extended warranty worth it?

Not sure whether you should purchase an extended car warranty? Your decision can depend on how long you anticipate keeping your car and how far you intend to drive. If you only want to drive the car a few years, or if you’re not a high-mileage driver, an extended warranty may not make the most financial sense. If you plan to keep your car for a substantial amount of time or beyond 80,000 miles, however, an extended warranty can be a good idea.

Consider your level of discipline for saving. Will you be comfortable paying a few hundred to a few thousand dollars for future repairs, or does the thought of high out-of-pocket expenses worry you?

In the end, extended warranties can provide peace of mind to those concerned with unexpected expenses. 

What to look for when purchasing an extended warranty

Fully review any documents associated with an extended warranty before you agree to the terms and conditions. Be aware of the required deductible, as well as the vehicle service locations or facilities that will honor your warranty. Also, if your vehicle is still under factory warranty and you’re looking to secure extended coverage, try to purchase your extended warranty as close to the factory warranty expiration date as possible. While you may want to avoid gaps in coverage, you’ll probably also want to avoid paying for overlap.

How much does an extended warranty cost?

Expect to pay between $1,300 to $4,000 or more for an extended warranty, but know that the total cost depends on the model and age of your vehicle, time of purchase and level of coverage you select. 

Extended warranty options

The level of coverage options for extended warranties can include:

• Bumper-to-bumper: comprehensive warranty that covers nearly everything in your vehicle
• Powertrain: typically covers the engine, transmission and drive axle(s)
• Drivetrain: one of the most basic levels of coverage, with a focus on driveshaft, axle shafts, transmission and wheels
• Wrap: designed to cover what isn’t included in the powertrain, a wrap essentially fills in gaps in coverage
• Corrosion: covers damage caused by rust and other forms of corrosion

As with any insurance policy or contract, the more informed you are prior to signing, the fewer obstacles you’ll encounter in submitting a claim. Conduct research, explore coverage options and come prepared for peace of mind without the risk.