Are Extended Car Warranties Really Worth the Expense?

Car repairs always seem to come at the wrong time. What’s more, one single problem with a vehicle could cost you thousands of dollars straight from your pocket.

When you first purchase a car, it can seem like the clock is ticking down to that manufacturer’s warranty expiration date with lightning speed. That timer starts as soon as you drive away from the lot. And, really, that warranty doesn’t cover your car for very long. So maybe you’re wondering if an extended car warranty really pays off in the long run.

An extended warranty certainly does look like an attractive option. This is especially true for people who don’t want to be surprised by high repair costs when a major component of their vehicle breaks down.

So, should you also grab a warranty when you grab the keys to your new car? Let’s take a look at the pros and cons of signing up for extra protection when you buy your next vehicle.

What Is an Extended Car Warranty?

Many people are confused about how an extended car warranty differs from actual auto insurance.

An extended auto warranty is essentially a service contract designed to offset the cost of repairs unrelated to a car accident (that’s what your auto insurance is for!). You can obtain an extended warranty for either a new or a used vehicle.

An extended car warranty shouldn’t be confused with a manufacturer’s warranty. The extended plan is designed to kick in and provide coverage only after a manufacturer’s bumper-to-bumper warranty has expired.

Typically, dealerships offer extended warranties when you purchase your vehicle. But most of the time, third-party companies are the ones actually administering the warranties. This means they may or may not actually be backed by the automaker behind the particular car you’ve purchased.

The Positives

What’s good about an extended warranty? For one thing, it can be a lifesaver if your car experiences an issue with a main component like the engine, transmission, or air conditioner. These are big repairs that come with hefty bills. Unless you’re saving up separately for unexpected auto expenses, a blown transmission could destroy your emergency fund in a single afternoon.

Learn More: Rebuilding Your Savings After An Emergency Expense

Plus, an extended warranty is typically easy to pay for. It’s usually added to the cost of a vehicle when you make the purchase. This means you will pay a simple lump sum instead of dealing with monthly or annual payments.

It is a good option if you don’t mind paying a little bit more at the front end to potentially avoid a big expense when you’re not expecting it a few years down the road.

What It Covers

Here are some of the repairs an extended warranty could potentially cover:

  • Major engine components
  • Fuel components
  • Electrical components
  • Braking components
  • Steering components
  • Suspension components
  • Heating and cooling components
  • Air conditioning
  • Front and rear drive axles
  • Transmission

Some comprehensive plans even offer benefits like 24-hour roadside assistance and payouts to cover the costs of rental vehicles or public transportation. Of course, what you actually get with your warranty will depend on how much you’re willing to pay for it.

Be sure to really read over your coverage information before purchasing the policy; they can carry a lot of fine print.

The Negatives

Will an extended warranty really pay off when you inevitably do need a repair done on your vehicle? The answer depends on the specific details of your warranty and the exact repairs your car needs.

A recent Consumer Reports survey revealed that 55 percent of car owners who purchased an extended warranty never actually used the warranty for repairs during the lifetime of their vehicle.

That same survey showed that the median cost customers paid for coverage was just over $1,200. However, the median out-of-pocket savings on repairs covered by extended warranties for all was just $837. This means that the average person can expect to lose about $375 when purchasing an extended warranty.

Extended warranties can be like a safety net with some pretty big holes. There’s no guarantee that the specific repair you’ll need will be covered. And most warranties have specific requirements for where your car can be serviced. This can make an extended warranty look like an unnecessary expense.

As mentioned, these policies often have a lot of fine print that could impact coverage. For instance, simply having your vehicle serviced at a place that is not approved could cause your warranty to be invalid. You may also need to seek approval from your warranty provider before you are able to make repairs on your vehicle.

Resource: How Much to Budget for Car Maintenance

Some people don’t want to deal with such a lack of autonomy just for the sake of potentially saving a little bit of money on repairs.

Going Bigger Might Be Better

While basic warranties are pretty inexpensive, they also don’t cover much. Paying a little bit more money for your warranty when you purchase your vehicle might be worth it if you really want peace of mind.

Most basic warranties only cover specific types of repairs needed for your engine or transmission. A top-tier warranty will cover more components throughout your car and provide perks like roadside assistance.

The pain of paying more at the time of purchase could turn into a big relief as soon as car problems begin piling up down the road.

Related: How to Save Money on Car Insurance

The Bottom Line on Extended Car Warranties

An extended car warranty is a good option to consider if you’re the type of person who prefers to pay now instead of paying later.

However, it may not be the best choice if you’re only planning to own a vehicle for a few years. You could actually end up paying for a warranty that you never use if you sell your car soon after the manufacturer’s warranty expires.

On the other hand, purchasing an extended warranty could be a really good option if you’re buying a used vehicle with a history of repairs.

The bottom line is that you’re always playing the odds a bit when it comes to purchasing an extended warranty. Is peace of mind worth the gamble to you?

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