An extended warranty is a vehicle service contract that pays for repairs to major mechanical parts of your vehicle, such as the engine, transmission, axles, and gaskets. These repairs can be expensive, but with an extended warranty, you would only pay a deductible for a covered repair, and the warranty provider pays for the rest.
When you buy a new or used car, the dealer will likely encourage you to buy an extended warranty. This is like an insurance policy for your car’s mechanical systems. Its coverage begins after the factory warranty ends, often after three years or 36,000 miles.
How Extended Auto Warranties Work
After you decide what type of coverage you want, you then choose how long the coverage will last. For example, the coverage may be for a set period or maximum mileage, such as four years or 100,000 miles, whichever comes first. An extended warranty won’t cover regular maintenance like oil changes and won’t cover damage from normal wear and tear or problems caused by a lack of maintenance.
It’s also important to note that you can’t use an extended warranty until the car’s original manufacturer’s warranty expires. While the dealer may encourage you to get an extended warranty when you buy your car, you can purchase it anytime before the manufacturer’s warranty expires. A good time to purchase an extended warranty is before the factory warranty expires. You’ll avoid a coverage gap, save money, and have a better selection.
Some consumers who put a lot of mileage on their cars buy extended warranties for new cars. Their rationale is that an extended warranty is less expensive for a new car, and they will reach the mileage limit for a factory warranty much faster than the average driver.
Types of Extended Auto Warranties
Two primary types of extended warranties are those offered by carmakers or original equipment manufacturers (OEMs) and aftermarket warranties from third-party vendors.
Manufacturer Warranties
A manufacturer’s warranty is built into the price of a new car. If there are mechanical problems or issues with systems, such as electrical, the manufacturer will cover the repair. Extended warranties from car makers continue the original benefits for a specified period or mileage amount. Some commonly extended manufacturer warranties are:
Basic Warranties
Manufacturers provide a primary or factory warranty with all new and certified pre-owned vehicles. It covers repairs to the powertrain and bumper-to-bumper repairs, such as mechanical problems, electrical components, and the sound system. A typical basic warranty lasts three years or 36,000 miles, whichever comes first.
Powertrain Warranties
The powertrain consists of the elements that move your car, including the engine, transmission, and driveshaft. Coverage for the powertrain is essential because repairs for engines or transmission repairs can cost thousands of dollars. Warranties for powertrains typically last for six years or 60,000 miles. A few models have coverage for up to 100,000 miles.
Drivetrain Warranties
The terms drivetrain and powertrain are sometimes used interchangeably, but there is a difference between a drivetrain and a powertrain warranty. The drivetrain moves the wheels and includes the transmission, the driveshaft, axles, and wheels. A drivetrain warranty does not cover the engine, while a powertrain warranty does.
Warranty Adjustment
If a particular car model has a defective part, manufacturers will issue a warranty adjustment to cover the repair cost. This coverage may extend beyond the original terms of the warranty. A warranty adjustment allows carmakers to repair the problem without a vehicle recall’s cost and negative publicity. These are sometimes known as secret warranties because they are communicated to dealerships and repair shops rather than the general public.
Third-party Warranties
Third-party or aftermarket warranties may offer similar coverage to manufacturers, but independent insurance companies or warranty companies offer them. In some cases, third-party warranties limit where you can have your vehicle repaired.
Corrosion/Rust Warranties
A corrosion warranty covers repairs to rusted components that occur naturally, such as exposure to the elements. Factory warranties on new cars usually cover corrosion for 12 years or 100,000 miles. Dealerships also offer rust protection on new cars and certain pre-owned models. This coverage is similar to that of carmakers and may extend to cover corrosion on parts like battery terminals.
Wrap Warranties
Usually available to cars with 50,000 miles or less, a wrap warranty extends the original bumper-to-bumper warranty. For example, the bumper-to-bumper warranty on a new car might last for three years, but the powertrain warranty is for 6. A wrap policy covers parts that are not included in the powertrain.
Advantages of Extended Auto Warranties
An extended warranty has many benefits, but deciding if it is worth the investment depends on your vehicle, budget, and risk tolerance.
Out-of-pocket Savings
An extended warranty keeps you from paying out of pocket if your car needs an expensive repair covered within the warranty. This protection is helpful if you don’t have enough savings to cover costly repairs. Some extended warranties offer additional benefits, such as rental car coverage or roadside assistance.
Extended Protection
The average car in the U.S. today is 12 years old. If you plan on keeping your car longer than the time covered by the factory warranty (usually 3 to 5 years), having an extended warranty may be a good idea. It can help you save on repairs as the vehicle ages and needs more maintenance.
Disadvantages of Extended Auto Warranties
An extended warranty is not for everyone. Part of assessing whether it is a good idea for you is understanding what it does and does not cover.
Coverage Exclusions
It’s essential to read the contract to understand precisely what an extended warranty covers. It does not cover routine maintenance such as oil or filter changes and tire rotations. Certain situations, like accidents or a lack of routine maintenance, can void the warranty. Some extended warranties require your car to be serviced at specific repair shops.
Additional Costs
An extended car warranty adds up to $3,000 to $4,000 to the cost of your vehicle. If you finance your car, you’ll pay interest on that amount, and your monthly car payment will be higher. Do your research and negotiate the price of your warranty with the dealer.
Usage
If your car does not need repairs while the warranty is in effect, the contract could expire before you ever need it. An extended warranty might not be beneficial if you don’t intend to keep your car for more than three years or if it is a very reliable model.
Who Should Consider an Extended Auto Warranty?
Drivers who intend to keep the car for a long time and don’t have the savings to cover expensive repairs may find that a warranty relieves financial stress. An extended warranty can be helpful if you have an older vehicle that is a less reliable model.
Consumer Reports notes that the best coverage options for vehicles with fewer than 80,000 miles for used cars.