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8 Things to Know About an Extended Car Warranty Before You Buy One

The Family Handyman logo The Family Handyman 9/27/2019 Emily Price
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When you purchase a car from a dealer, you're often given the opportunity to also purchase an extended car warranty. Also known as a vehicle service contract, the warranty will help cover the costs of some repairs you might need on the vehicle while you own it.

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While getting help with repairs is great, extended car warranties can often be rather expensive, which raises an important question: Is an extended car warranty worth it? The fact that banks don't usually require extended warranties is one of the secrets dealers don't want you to know.

What is an extended car warranty?

Extended car warranties are in many ways exactly what they sound like: a way to extend the manufacturer's warranty on your vehicle. When you purchase one, the warranty will typically go into effect after your manufacturer's warranty ends, and will last most often for three to five additional years.

Most extended warranties aren't going to cover routine maintenance, and many won't cover all the same things that your traditional car warranty did from the manufacturer.

Do I need an extended warranty for my car?

If you're purchasing a new car, the answer is probably not. US News & World Report says that if you have the discipline to put away a few thousand dollars as part of a "rainy day" fund in case you have car issues, then there probably is no need for an extended warranty with a new car. That said, it suggests that if you put enough monthly mileage on your car that you're likely to hit the end of your manufacturer's warranty quickly, then one might be a good idea.

Where do I buy an extended car warranty?

There are lots of different places where you can purchase an extended car warranty, but by and large, you never want to purchase one from someone other than your dealer, presuming you're buying from a reputable one. Credit Karma notes that if the company you purchase your warranty from goes out of business, you'll be stuck paying the bill for repairs anyway. Make sure you're purchasing your car warranty from a business you trust that's likely to be in business for the life of your vehicle, or at least of the warranty. Before you head to a dealer, know the 16 signs you're about to fall for a bad car deal.

What should I look for in an extended car warranty?

Beyond making sure you're purchasing your warranty from a reputable business, you'll also want to make sure you know what coverage options you're purchasing. Some extended warranties will only cover very specific repairs to your vehicle, while others are more comprehensive. Make sure you read through the policy's fine print before signing up and make sure the cost of the plan (including the interest you'll pay if you add it to your car loan) is worth the savings in potential repairs.

You should also pay attention to where you'll have to have your car serviced should you need to redeem that warranty, as well as how you'll be reimbursed for repairs should you have to pay for them up front.

What does an extended warranty not cover?

An extended car warranty typically doesn't cover things like routine maintenance and roadside assistance, although your dealer might have other plans you can purchase that do cover those things. What is covered will vary, but is often just mechanical defects in the vehicle, not issues that would be caused by normal wear-and-tear. Learn about the simple car repairs you can actually do yourself.

When should I buy an extended car warranty?

Extended car warranties are traditionally purchased at the same time as your vehicle. It's a good idea to buy one of these from a business you trust, where you can read through all the fine print there and ask any questions you might have about the policy prior to handing over any cash.

While the dealer is likely to push you to buy one at the time you purchase your vehicle, you can actually purchase an extended car warranty after you already own the vehicle, provided it hasn't racked up a ton of miles and isn't damaged.

How should I pay for my extended car warranty?

If you purchase your extended car warranty from a dealer, then it may offer you the option to finance the warranty along with your car. If you're financially able to pay for it separately, that's always a better idea. Financing your car warranty over the life of your loan can make it cost significantly more than if you pay for it outright, ultimately making it less of a value.

When is an extended car warranty worth it?

If you're purchasing a used car with high mileage, then you stand a better chance of having issues with the vehicle, simply due to how much wear it's gotten. An extended car warranty can give you peace of mind knowing that your vehicle will be covered should you run into any basic mechanical issues with it.

In general, an extended car warranty makes more sense when you're purchasing it for a car where the original manufacturer's warranty has run out, rather than for a car where you have a few years left to go on the included warranty.

An extended car warranty can also make sense in a situation where you drive often and will surpass the manufacturer's warranty quickly, or for people who would have a large financial issue should an unexpected car-related expense come up. Follow these 100 car maintenance tips that will save you money in the long run.

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