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Extended car warranties: Are they worth it?

There’s a lot to consider when purchasing a new car, like what sort of model you’d like, financing, and where to find the best deals. But one item many people don’t think about until they sit down across from the dealership finance manager is an extended warranty. 

Is an extended warranty worth it? While many buyers may purchase an extended warranty with their new vehicle, it may not be the best choice for everyone. You should understand what an extended warranty can do and the pros and cons of one before deciding if it’s the right option for you.

What does an extended warranty cover?

An extended warranty is an optional warranty you can purchase that can extend coverage over a longer period of time or miles.

What warranties come with a new car?

When you purchase a new car, it may come with a manufacturer warranty. This is a bumper-to-bumper warranty that usually lasts three years or 36,000 miles, although this may vary depending on the manufacturer. 

New vehicles may also come with a powertrain warranty. This is a warranty that covers the cost of repairing damage to major vehicle systems that keep the car operational. Powertrain warranties usually won’t include coverage for minor systems or cosmetic issues. If you do purchase a vehicle with a powertrain warranty, you may not feel the need to purchase an extended warranty.

Extended warranty coverage

Extended warranties usually have less coverage for repairs than the manufacturer’s warranty and may only cover what breaks down with your vehicle. That means an extended warranty typically won’t cover regular maintenance like:

  • Oil changes.
  • Replacing worn-down tires.
  • Replacing brake pads and rotors.

Extra services such as roadside assistance may not be covered either. 

Extended warranty limitations

There are other limitations to extended warranties as well. Some may require you to pay a deductible, or a portion of the repair cost, before the warranty coverage kicks in. Some may also limit the shops or garages you may go to get the repairs done.  

It’s important when purchasing an extended warranty to carefully review the fine print to find out what is and isn’t covered, and what the particular limitations are — that way, you’re not surprised when you go to the repair shop. 

Are extended car warranties worth it?

If you do decide that you’d like to purchase an extended warranty, first consider when you’d like to purchase it. Extended warranties usually don’t go into effect until the manufacturer’s warranty has expired. 

It’s often best to wait until the original coverage is almost up before purchasing the extended warranty. If you do end up buying that extra coverage at the same time you purchase the vehicle, you might be able to roll the cost into your monthly financing. However, if you do this, you may end up paying a bit in interest for a product you can’t immediately use. 

It’s also important to keep in mind that dealerships sell extended warranties to make money. However, extended warranties are usually negotiable! Do some research to find out how much an extended warranty should cost for vehicles similar to the model you’re purchasing. That way, you can have some leverage and confidence on your side before going into a negotiation. 

If you’ve already purchased an extended warranty but have decided that you’d rather just pay for any repairs out of pocket, you might be able to cancel your existing warranty at any time for a refund. 

Is an extended warranty the right choice for you?

Now you know what an extended warranty is, what it covers, and things to consider when you’re purchasing one. But is an extended warranty worth it for you in particular? Here’s just a few pros and cons to help you decide whether extended warranties are worth it. 

Pros

  • Peace of mind
  • You can save money on costly repairs

Cons

  • You may never use it
  • It could be years before it goes into effect
  • They often offer low coverage

Pro 1: Peace of mind

One of the biggest reasons people choose to purchase extended warranties is the peace of mind they can offer. Despite the limitations these types of warranties may have, they can still be beneficial in cases where major repairs are needed. 

Pro 2: You could save money on costly repairs

While there are limits to what an extended warranty can cover, it’s still beneficial to have if you ever do need serious and costly repairs done on your vehicle. Much like health or life insurance, extended warranties are great to have when absolutely needed. 

Con 1: May never use it

Extended warranties are notoriously known for hardly ever being used. In fact, most people who purchase one could either never use it or spend more on the warranty itself than if they had just paid for repairs out of pocket.  

It’s often better to search out a reliable vehicle that isn’t likely to need costly repairs, then save the money you would have spent on the warranty in an emergency fund in case it ever needs repairs. 

Con 2: It may not go into effect immediately

Many extended warranties won’t go into effect until the manufacturer’s warranty has expired, which is typically three years after the date of purchase. If this is the case, buying an extended warranty at the time of the vehicle purchase and rolling the cost into your monthly payment could cost you extra in interest for a product you can’t even immediately use.

It’s better to wait until the manufacturer’s warranty period is nearly up before buying an extended warranty. Keep in mind, however, that once the manufacturer’s warranty has expired, the cost of an extended warranty may go way up. 

Con 3: Many offer low coverage

Extended warranties typically come with several limitations, and the amount of coverage can differ with each one. Things like routine maintenance and parts replacements usually aren't covered on an extended warranty, nor are other services like roadside assistance. The warranty may require you to pay a deductible on repairs. Many times, an extended warranty even limits which shops you may go to for repairs.

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