Whether an extended car warranty is worth it depends on your car, your budget, and your tolerance for financial risk—and in some cases, it can pay off significantly. We asked veteran automotive-sector analyst Karl Brauer what car owners should know before buying extended warranty coverage.
What Is an Extended Car Warranty?
An extended warranty, officially called an “extended service contract” or “vehicle service contract,” provides warranty protection after the vehicle’s standard warranty has expired, for a fee. These extended warranties are available from vehicle manufacturers, dealerships, and third-party providers.
Types of extended warranties
Not all extended warranties are the same…
- Manufacturer-backed warranties are offered directly by the automaker and typically provide the broadest coverage and easiest claims process.
- Dealership-backed warranties are sold through dealerships and may limit where repairs can be performed.
- Third-party warranties are offered by independent companies and often cost less, but coverage terms, repair restrictions, and provider reliability can vary significantly.
What Does an Extended Car Warranty Cover?
A “bumper-to-bumper” or comprehensive warranty covers most of the cost of repairing or replacing virtually any part of the car that fails, with a few exclusions.
Common extended warranty exclusions include:
- Wear items: Parts that chronically wear out through normal use are not normally covered. “Tires, windshield wipers, brake pads,” says Brauer. “Those are usually excluded.”
- Scheduled maintenance: Routine procedures such as oil changes are generally not covered, unless the extended warranty is part of a comprehensive “vehicle service plan.”
- Damage resulting from an accident, misuse, or failure to properly maintain the vehicle: Don’t expect an extended warranty to cover engine damage if you don’t have oil changes done on schedule.
- Pre-existing damage: Some extended warranties won’t cover parts that were in the process of failing before the warranty was purchased. Warranties also might impose waiting periods before any repair is covered.
- Additional coverage restrictions: Some extended warranties cover only specific components, such as the vehicle’s powertrain, rather than provide bumper-to-bumper coverage.
Some extended warranties also cover towing and/or renting a car while repairs are performed. Keep in mind: coverage tends to vary significantly between providers—before purchasing any extended warranty, be sure to carefully review the contract to understand exactly what is and isn’t covered.
How Much Do Extended Car Warranties Cost?
Extended warranty pricing isn’t one-size-fits-all. One recent Wall Street Journal analysis found that bumper-to-bumper coverage typically costs between $1,700 to $4,600 per year. Several factors affect where you fall in that range:
- Vehicle age and mileage: Warranty prices rise sharply as vehicles age.
- Manufacturer reliability: Problem-prone European brands generally cost more to insure than famously reliable car brands like Toyota or Honda.
- Luxury vs. economy vehicle: Luxury vehicles with cutting-edge tech and pricey parts cost more to cover.
- Coverage level: A bumper-to-bumper policy with no deductible costs more than limited coverage.
Who’s selling the warranty also matters—manufacturer warranties typically cost more than third-party warranties.
Pros and Cons of Extended Car Warranties
Potential benefits
An extended warranty transforms big, budget-busting, out-of-the-blue car repair bills into a predictable expense.
It can also reduce car ownership anxiety. “If you’re going to be stressed every time you’re driving and a light comes on the dash or something like that,” says Brauer, “then maybe an extended warranty’s worth it.”
Potential drawbacks
You probably won’t get as much back from an extended warranty as you paid for it—the companies that sell this protection earn hefty profit margins.
There are exceptions, of course—Brauer himself once had an $8,000 engine repair bill paid by an extended warranty that cost him $2,500. “That warranty totally saved me,” he says.
The other big downside is that consumers who trust the wrong extended warranty providers sometimes struggle to get their repair bills paid. (More about choosing among warranty options below.)
Are Extended Car Warranties Worth It for New Cars?
When you buy a new car, the dealership likely will also try to sell you an extended warranty.
Don’t feel pressured to rush this purchase—the extended warranty offered at the time you buy your car likely will be available for years to come.
“Until the factory warranty runs out, you can extend the warranty,” says Brauer. “Why not wait until year two and a half and then say, ‘Okay, I’ve seen the bills, I know what it would have been costing me to service the car. I know the issues other buyers have been having with this car. Now I can weigh whether I want to pay for an extended warranty to keep covering it’.”
You might be charged a bit more if you wait until later in a car’s standard warranty period to buy an extended warranty, but you’ll be better positioned to make an informed decision.
Are Extended Car Warranties Worth It for Used Cars?
Used car buyers face a challenge that new car buyers don’t—they can’t be certain how well the car was maintained by its prior owner. That’s a good reason for used car buyers to obtain a pre-purchase inspection, a certified pre-owned vehicle, or, potentially, an extended warranty, if one is available at a reasonable cost.
Alternatives to Extended Car Warranties
The most obvious alternative to an extended warranty is maintaining an emergency fund of around $5,000 to pay for repairs out of pocket. That’s a lot of money to set aside, but it’s comparable to what you might have to pay for a few years of extended warranty coverage.
If you opt for the emergency fund rather than the warranty, that money remains yours even if your car doesn’t require major repairs; that’s a big point in the fund’s favor in the extended warranty vs. savings fund debate.
Another alternative is “mechanical breakdown insurance” (MBI), available through some auto insurance providers. MBI provides similar protection to an extended warranty, often at a significantly lower cost. Typically, MBI must be purchased while the car is still nearly new, however, and its coverage might be restricted to aftermarket parts.
How to Decide If an Extended Car Warranty Is Right for You
Here are some key questions to ask yourself:
Has this vehicle given me reason for concern? Evaluate your ownership history, ideally before your initial warranty ends. If mechanical problems have been common, extended coverage might be prudent.
Would an unexpected four-figure repair bill create a major financial problem for me? “If you can afford the purchase of the warranty far more than you could afford an unexpected big expense falling out of the sky onto you,” says Brauer, “I think that’s probably when a warranty makes the most sense.”
What’s this automaker’s track record for reliability and repair affordability? “Generally speaking, it’s more justified to get an extended warranty with something like a European luxury car,” says Brauer. “The warranties on these can be expensive, but one failed part could pay for the warranty.”
Do other car owners report pricey problems with the same model? “The best place to find that is ownership forums,” says Brauer—enter the make and model and the word “forum” into a search engine to find appropriate online vehicular discussion groups.
Are you still relatively well protected by the original warranty? If you’re buying an EV, it might come with an 8-year/100,000-mile warranty on its battery, for example, reducing the need to buy an extended warranty.
How much will an extended warranty cost for my car? They can be prohibitively expensive once a car approaches 10 years or 100,000 miles.
Am I confident I’ll keep this car for at least the duration of the pre-paid warranty? Some warranties can be transferred if the car is sold; others cannot.
How much is automotive peace of mind worth to me? There’s no right or wrong answer here; it’s a matter of preference.
How to Choose a Reputable Extended Warranty Provider
The safest answer to “how to choose an extended car warranty” is to select the warranty offered by the vehicle manufacturer, argues Brauer. Other extended warranties likely will be less expensive, but no other warranty will be as reliable or seamless.
Manufacturer-backed extended warranties typically allow car owners to obtain service at any of that make’s dealerships nationwide. They cover the cost of “original equipment manufacturer” (OEM) parts rather than require potentially less-reliable aftermarket alternatives, and coverage hassles are comparatively uncommon.
Dealership-backed extended warranties, on the other hand, usually cover service only at that dealership group, which could be an issue if you relocate, the dealership goes out of business, or the dealership’s service department is unpleasant to work with.
Finally, third-party extended warranties often cost less than the other options, but it’s a mistake to make the manufacturer vs. third-party extended warranties decision based on price alone.
Third-party warranties often cover only aftermarket parts, sometimes have additional coverage restrictions—such as limiting car owners to a list of approved mechanics, and can be rendered worthless when warranty providers go out of business.
Moreover, third-party warranties usually require car owners to pay for repairs out of pocket then seek reimbursement from the warranty provider, which doesn’t always occur smoothly. Consumer complaints about third-party extended warranty providers are common.
Before signing any extended warranty contract, ask and/or read that contract carefully to determine:
Who’s backing this coverage—the manufacturer, the dealership, or a third party? This isn’t always obvious.
Can I sign up for this later? As noted above, some extended warranties are available at any point until the car’s initial warranty ends.
Where can and can’t I obtain service with this coverage? There might be restrictions.
If I sell the car, can this coverage be transferred? This is especially important if prepaying for multiple years of protection.
Is there a deductible? Some extended warranties have deductibles of hundreds of dollars per repair.
What’s excluded from coverage? If you’re wondering “what does an extended car warranty cover?” the answer is that it covers whatever the contract says it covers; you need to read the details.
Are the terms negotiable? It’s often possible to adjust the years and miles covered, for example.
The safest strategy when it comes to third-party extended warranty providers is to avoid them entirely, says Brauer. But if you wish to explore these, read their contracts with particular care.
Also enter the name of the company into a search engine along with terms like “class action lawsuit,” “FTC,” or “attorney general” and scan the results for any reasons to be concerned about the company’s trustworthiness.
Unfortunately, third-party extended car warranty scams and less-than-consumer-friendly practices abound. “If you’re talking about a manufacturer warranty, I can argue why it makes sense,” says Brauer. “If you’re talking about an aftermarket warranty, I can argue why it doesn’t make sense.”
