Extended car warranties may save you money if your vehicle requires any repairs covered by the plan. However, many people never end up using them, so are they worth the money?
Extended car warranties may help cover the cost of certain repairs to your vehicle, but are they for you?
When the manufacturer’s warranty on your automobile expires, you have the option to sign up for an extended warranty that covers certain car repairs. It may sound like an great idea to sign up for one of these plans, but often they are expensive and do not cover everything that can go wrong with your vehicle.
In addition to the high price tag, many people never end up using the warranty they spent so much money on to keep. In fact, over 50% of people who buy an extended warranty for their vehicle never use it, making it a cost with no financial returns.
And, typically when the warranty is used, the cost of repairs is much less than the total cost of the warranty. Instead, it may make more sense to set money aside to pay for repairs, rather than purchasing an extended warranty for your vehicle.
Before deciding if an extended warranty is right for you, it is important to understand what the plan covers, the price and how they work. Having an extended warranty coverage plan on your car may give you peace of mind, but it is important to weigh out all the factors before deciding to purchase an extended auto warranty.
Extended car warranties: The basics
A vehicle service contract, another name for an extended car warranty, is an optional protection plan that can help cover repair costs on your vehicle. Typically, these plans begin as soon as your manufacturer’s warranty expires. However, these plans will not cover all types of maintenance on your car, truck or SUV.
What do extended warranties for vehicles cover?
An extended warranty offers different coverage options than your car’s original factory warranty. These plans will not cover routine maintenance such as oil changes, new tires or brakes.
In order to fully understand what the warranty does cover, read all fine print in the agreement and contact customer service with any questions you may have.
What does an extended car warranty cost?
When you buy a car from a car dealership, often, the dealer will ask if you wish to purchase an extended warranty with your vehicle purchase.
Oftentimes, dealerships will mark up the cost of extended warranties in order to make a profit. Consider negotiating with your dealer to lower your overall or monthly payment and always check to see what independent providers have to offer.
The coverage options for extended warranties vary greatly. Your final cost is determined by plan coverage and your make and model of car. Typically, upfront costs are between $1,000 and $3,000, including interest, a deductible and other fees.
Deductibles will be charged in one of two ways, either per repair or per warranty service visit. Determining how your deductible works is important, especially if you need to take your car into a repair facility. Some problems cannot be fixed in a single trip to the repair shop, and, in some cases you may end up paying your deductible multiple times for a single repair.
Does it work for new and used cars?
Buying a new or a used car can help you determine if you should purchase an extended warranty. If you are buying a new car, your car should still be under the manufacturer warranty – which is usually included when determining the price of the car. The manufacturer’s warranty will cover most repairs during your first few years of vehicle ownership.
Used cars represent different terms, however. Often, it may not still be under the manufacturer’s warranty. In order to check, look for the Buyer’s Guide on the car window to know if the car’s original warranty is still intact. Some warranties will require you to pay a fee to have it transferred over to you.
If the vehicle you are purchasing is no longer under warranty and you want additional coverage on your car, buying an extended warranty may be right for you.
The manufacturer’s warranty:
The length of a manufacturer’s warranty varies depending on the maker of your car. Typically, two types of warranties are offered: bumper-to-bumper and Powertrain warranties.
Bumper-to-bumper warranties cover your car up to 3 years or 36,000 miles, whichever comes first. Powertrain warranties last up to 60 months or until your vehicle hits 60,000 miles. Powertrain warranties cover what gives your automobile power. This typically will cover engine and transmission issues, or the fixes that are very expensive.
Is an extended car warranty worth the money?
Before purchasing an extended warranty for you car, knowing all of the benefits and downsides is important to weigh out your decision.
The pros:
- Savings – The most obvious, and biggest benefit of having an extended warranty is that it can save you a lot of money if your car needs an expensive repair that is covered under the contract. In the event of needing a costly repair, you’ll only be responsible for the car’s deductible.
- Peace of mind – Extended warranties will also give you peace of mind if you constantly worry about how you will afford future car repairs. It’s a feature that is appreciated in the event that you need it.
The cons:
- Usage – Many people that purchase an extended warranty never end up using it. Or if they do, the repair is much less than the price of the warranty.
- Overlap – Sometimes, the manufacturer’s warranty will overlap with the extended warranty, so you may be paying for something that you already have coverage for.
- Coverage – Extended warranties do not cover everything that may need fixed in your vehicle. Always read the fine print so you will avoid a nasty surprise repair bill you thought would be covered by the warranty. In addition, many extended warranties have depreciation clauses that will only pay for a portion of the repair based on the car’s mileage.
- Service requirements – Warranties have partnerships with certain repair shops, meaning that you may not be able to get your car fixed anywhere.
- Reliability – Under most extended warranties, the dealer or manufacturer is responsible for paying for any vehicle repairs. If the dealership or company that is supposed to honor the warranty goes out of business, you may be stuck with a warranty you cannot use.
Next steps
Extended warranties can be expensive, adding thousands of dollars to the cost of a car. It can be a part of financing, so it might not seem like much since it is not an upfront cost. However, it is important to remember that they cost a significant amount of money.
Vehicles with reliable track recorders may not require the purchase of an extended warranty. But, consider putting the money you’d be spending on the warranty aside in case something goes wrong.
Always remember to do your research before deciding to purchase an extended warranty. It is up to you to decide if the peace of mind is worth the high price tag. Be wary and weigh out all of your options when deciding if an extended warranty is right for you. Always watch out for warranty scams and always work with reputable companies.
