Should you buy an extended car warranty?

Being caught off guard with a large bill for your vehicle out of warranty is exactly the situation for which extended warranties were created. But choose wisely and read the lowercase letters, because everything in them is “negotiable.” Getty Images

If you don’t have a home, buying a car is probably the single largest purchase most people will ever make. It’s a big investment and like most things with value, we want to protect it in the long run, but is buying the extended warranty the way to do it?

Let’s take a closer look at what an extended warranty is, what it covers and whether or not you should buy one, either as an addition to your existing vehicle or when purchasing your next warranty.

What is an extended warranty?

Simply put, an extended warranty, sometimes called a car service contract (although they aren’t always exactly the same), is a supplemental service plan that covers a specific set of repairs that can arise as part of vehicle ownership.

Warranties are designed to cover unexpected repairs and vehicle related expenses. Vehicle service contracts cover expected maintenance costs and prepay those costs at a lower rate than they may be charged in the future. The terms are often used interchangeably because most warranties are a promise by the escrow company to pay for services in exchange for an advance purchase of the document.

car service
Extended warranties and vehicle service contracts are closely related, but both are agreements between a vehicle owner and a financial institution to pay for repairs that come up after a factory warranty runs out. Getty Images

These types of coverage are often purchased by buyers who intend to own a vehicle that is beyond the standard factory warranty period or of a used vehicle that is already out of warranty. It is a completely separate coverage package and is purchased separately from the factory warranty that comes with a new vehicle.

While a pure warranty only comes from the manufacturer, extended warranties can be sold by the dealer, manufacturer, or other third party in various lengths and coverages. Cover can be purchased in full or in monthly payments linked to the monthly costs of vehicle ownership.

According to the Federal Trade Commission, it’s a smart move to check your service provider’s reputation with your state’s consumer protection office to ensure you’ve chosen a reputable company to do extended business with. You can check this data here, but we also looked at some of these providers and made a list of some of the best ones.

What does the extended warranty cover?

Extended warranties aren’t quite the same as new car warranties, and their solution could be Byzantine. Since there is no regulatory rule that specifies exactly what should be included in an extended warranty or vehicle service contract, guidelines, coverages, and terms vary greatly from state to state and by service provider.

As a result, it is very important Read the soft line, do your research and ask any questions you might need clarification about before you sign the contract.

brake pads replacement
Extended warranties are not designed and generally do not cover routine maintenance items such as an oil change or brake pads. Getty Images

An extended warranty typically covers all or part of a specific set of repairs that arise after the original manufacturer’s warranty has expired. Since this contract is purchased separately, the duration, coverages, and terms are often negotiable. It is in the buyer’s best interest to choose a plan that meets his needs, for the length of time he plans to own the vehicle and covers repairs and systems he deems necessary.

Repairs to major parts systems such as the engine, transmission and power train are usually covered. Also, the full cost or part of the costs associated with towing and renting the vehicle will usually also be covered during the time the repairs are made. But things like routine oil changes, fluid and tire replacements are often not the case.

Also, often when a vehicle is still within the term of the factory warranty, the coverages offered in the extended warranty overlap with those provided by the factory, making it an unnecessary expense. Be sure to read the fine print about the length of time your rental car is guaranteed and what discounts may be subject to.

Also, be sure to specify whether you as a buyer will have to pay up front and wait for payment for services or whether the costs are covered directly by your plan. Payment hassles can make a potential plan more difficult to use.

2015 Buick Regal
What you pay also matters. Well-maintained family sedans always cost less…
2015 BMW Z4
… of high-performance vehicles with higher maintenance and repair costs. Alex Kwanten

What are the common factors that can invalidate an extended warranty?

Most extended warranty plans have a very specific set of circumstances in which payment and claims will be accepted. They are often listed in a section titled “Driver’s Responsibility” or “Buyer’s Responsibilities.”

They will detail your responsibilities as a buyer and will clearly state what you need to do and how you need to do it in order to obtain and maintain coverage. These types of plans usually require that you stick to a regularly scheduled vehicle maintenance plan such as a clock mechanism in the schedule suggested by your vehicle manufacturer.

For example, if you choose not to change the oil regularly and then the engine suddenly develops a new sound that needs checking, the following repairs will not be covered. Modifying your vehicle can also cause your policy to become inactive.

Uber Driving School
There are some extended service contracts and warranty products for people who drive, but until 2020, almost any extended warranty coverage will almost automatically void. Check out the finer details if you use your car in this way. Robert Alexander / Getty Images

Also, if you choose to use your vehicle for business purposes such as driving for a food delivery service or parcel delivery, your service plan will be voided. There are some specialized extended warranties and service contracts for service drivers, but it’s still a very new idea for most insurers and warranty providers. Check the fine print first!

Note that repairs that arise as a result of regular wear and tear or failure to adhere to a routine maintenance plan will generally not honor your claim. It’s also important to note that in the case of a used vehicle, problems that are defined as “pre-existing,” such as problems caused by damage from a previous accident, will not be covered under the new extended warranty plan.

Should you buy an extended warranty plan?

It depends on your need and choices in the car, so there is no one clear answer for everyone. First, you should check the status of your factory warranty, although if your vehicle is more than six years old, you will likely be out of coverage.

If you plan to keep your car for a long time and are willing to monitor the mileage and maintenance, stick to the terms and conditions of the contract and will not modify it, then it can be a smart choice for you and your wallet.

If you have your own “emergency” car repair box or you tend to get the vehicle serviced on your own schedule, an extended warranty may not be right for you. Likewise, if you want to modify your car or do your own maintenance at home, this is not a good option either. Moving driving is another gray area, but there are some extended service and warranty products designed for this type of operation.

As with anything else about warranties, read the small print details and check for any details you weren’t aware of before signing the dotted line.

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