Extended Used Car Warranties: Are They Worth It?

By Anthony Sophinos

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As humans, we crave security - from burglars and thieves, from the weather, from bad drivers, and from all else that's unpleasant and unexpected. It's why we buy life insurance for our families and keep umbrellas in our car. Security brings us peace of mind we may not otherwise have.

That peace of mind is a big reason why people spring for an extended car warranty when they go car shopping. Extended warranties are exactly what they sound like - an extension of the factory warranty that comes standard with every new car sold today. For a single one-time fee, you can extend your coverage for a few years beyond when the normal warranty expires.

It's a tempting offer, and it looks even better when the cost of it gets when rolled into a monthly payment. For a few dollars more a month, why shouldn't a car buyer splurge on it?

But there's more to it than that. Many buyers of these warranties eventually realize they spent more on the warranty than they got out of it.

You'll want all the facts before you make any decisions about getting an extended warranty. To help, we've laid out what you'll need to know before deciding to buy an extended warranty.

What exactly is an extended warranty?

An extended warranty - also known as a vehicle service contract - is an agreement brokered between you and the warranty provider over who pays for repair costs to your vehicle during a stated window of time.

The premise is simple. You'll pay upfront for the warranty, and if anything happens to the car during the period of coverage, the warranty provider should pay all costs less any deductible.

That's the idea of it, at least. In reality, the warranty provider may not cover every sort of unexpected repair your car might need. They also might reduce coverage for certain repairs as the car continues to depreciate or as mileage accumulates. Each extended warranty is different in this regard, so you'll need to carefully read the fine print. The last thing you want is to get in a dispute with the provider over who is paying to fix your car when it's down and out on the side of the road.

How does it differ from a typical new-car warranty?

Every new car comes standard with some sort of manufacturer's warranty. There's usually two types: the bumper-to-bumper warranty and the powertrain warranty. The latter one covers the engine, transmission, drive system, and other critical mechanical components. The bumper-to-bumper takes care of anything that doesn't fall into that category. If your radio fails, or a turn-indicator relay burns out, or the seat motors freeze up - all that should be covered by the bumper-to-bumper warranty. Wear and tear stuff like brakes, tires, and oil changes are not covered by either warranty.

Most manufacturers offer bumper-to-bumper warranties for three years or 36,000 miles, though this may vary. Powertrain warranties also vary but are typically good for five years or 60,000 miles. Hyundai and Kia notably offer 10 years or 100,000 miles on their powertrains, which is the best in the business.

Extended warranties kick in once the factory warranty expires. They also make distinctions between bumper-to-bumper and powertrain coverage, but they may not be as comprehensive as the factory warranty. A good warranty provider will show any potential customer a list of inclusionary and exclusionary items that spells out what is and isn't covered by these warranties. Consider it a must-read before buying any warranty.

Again, we can't stress enough the importance of reading the fine print that comes along with any extended warranty, so you can know exactly what constitutes a covered repair should your car break down.

Who sells extended warranties, and how much are they?

Some extended warranties are available through the manufacturer. Most come from a third party such as the car dealership, an auto club like AAA, or a specialized provider.

When you're purchasing a new or used car from the dealership, the salesman will likely offer you an extended warranty. If you choose to buy it, the price of the service contract will be bundled into the financed amount. This is convenient, but it will also cost you: a larger monetary amount will then need to be financed, which in turn results paying in more interest over the life of the loan.

As for a dollar value, expect to shell out between $1,000 and $3,000 for an extended warranty. The price depends on factors including the level of coverage and the amount of your deductible, as well as the age, make, and model of your car.

Popular third-party warranty companies include Carchex, CarShield, and Endurance. AAA also offers a limited extended warranty that goes beyond their usual roadside assistance services like tire changes and battery jumps. The national used-car dealer Carmax offers a generous extended warranty covering the cars they sell.

What are the benefits of an extended warranty?

The biggest benefit is the peace of mind you get when driving an older high-mileage car that isn't covered by any sort of factory warranty. You can rest easy knowing that if anything were to fail on your car, you'd likely only be liable for the deductible. The warranty provider would take care of the rest, often paying the repair facility directly. That means you won't have to scramble to pay staggering repair bills should anything serious fail on your car.

To fit your budget and needs, extended warranty providers often offer various coverage plan options so you can get just the right amount of protection. They may also come with perks like towing, rental car reimbursement, and even roadside assistance. The better providers will let you choose your repair shop as well.

Similar to auto insurance, an extended warranty is there when you need it but invisible otherwise.

What are drawbacks?

The biggest issue with the extended warranty is the general reliability of today's cars. Studies have shown that most buyers of extended warranties spend far more on the warranty than they get out of it in saved repair costs; many don't end up using the warranty at all.

Even if you do need to use the warranty, you'll still have to pay a deductible, tempering potential savings. And sometimes coverage might not extend to certain items. If one of these exclusionary parts fails, you'll be on your own to fix it.

Not all extended warranties are transferable, either. This means that if you choose to sell your car or gift it to a family member, the new owner may not enjoy the benefit of warranty coverage. This could be important if you were planning on giving your car to your children or selling it to a friend.

You also may not be able to transfer a warranty to a new car should you choose to replace your current one. If you aren't planning on keeping your car for the long haul, an extended warranty might not be the best option.

Should I buy an extended warranty?

The truth is that most people are better off without it. Instead of spending a couple thousand dollars for a warranty you may or may not use, you're better off socking away that cash into a rainy-day fund in case your car does incur a costly repair. For all the peace of mind that a warranty provides, it doesn't beat having an extra bit of money in the bank that's there if you need it but also there if you don't.

Rather than an extended warranty, you can allay your fears of future car trouble by buying a car with a proven track record of reliability. Finding that data isn't hard to do: with a bit of searching you can quickly learn what are some of the most reliable cars on the market. Consumer Reports, for instance, is famous for their comprehensive reliability data of all cars, trucks, and SUVs on the market. iSeeCars has also conducted numerous studies concerning the most reliable and longest-lasting cars and trucks. You can find those studies and others here.

The Bottom Line

The perceived benefit of an extended warranty is the safety net of having someone else cover your car's repair expenses should it break down. But instead of spending up to $3,000 (or possibly more) on an extended warranty, you can take a few simple steps to protect yourself against unexpected repairs without spending big money upfront. Research and buy one of the most reliable cars, save a bit of money for an emergency fund, and never neglect to do routine maintenance. Getting a reliable car and maintaining lowers the risk for pricey repairs, and that financial safety cushion will help get you through against anything unexpected. 

If you’re in the market for a car, you can search over 4 million new and used cars with iSeeCars’ award-winning car search engine that helps shoppers find the best car deals by providing key insights and valuable resources, like the iSeeCars VIN check report.