Extended Car Warranties: What You Need to Know

Extended car warranties are optional auto service contracts that help pay for repairs when your car breaks down. They typically cover a wide range of issues and cover your vehicle after your manufacturer’s warranty ends. Unlike an auto insurance policy, which covers accidental damage, extended warranties cover mechanical defects or failures.

But the Consumer Financial Protection Bureau (CFPB) notes that extended vehicle warranties “may not provide value.”^[1] And the Federal Trade Commission (FTC) warns of scams in the vehicle services contract industry. So it’s key to evaluate an extended warranty plan carefully before purchasing. Here’s what you need to know.

How extended vehicle warranties work

An extended car warranty is an agreement with a vehicle services contract provider that covers the cost of certain repairs. You pay an up-front or monthly fee for coverage, and the company reimburses you for any covered repairs based on the terms of your contract.

The contract typically lasts for a certain number of years or miles and provides coverage beyond the manufacturer’s warranty. But you may have to pay a deductible before the coverage kicks in.

You can purchase extended auto warranties from the manufacturer, a car dealer, or a third-party provider at the time you purchase your vehicle. You can also wait and buy an extended manufacturer’s warranty before your factory warranty expires or add a third-party extended warranty at a later date.^[2]

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What extended car warranties cover

Extended vehicle warranties vary significantly across companies and plans. Some vehicle protection plans mirror your car’s factory warranty and merely extend the coverage period. Others may include extras, like roadside assistance, or cover brakes, tires, and other parts that a manufacturer warranty doesn’t traditionally cover.

Many service providers cover issues with the engine, transmission, driveshaft, and axles due to faulty manufacturing or damage from regular use, similar to a powertrain warranty. Some plans may also extend the manufacturer’s bumper-to-bumper warranty, which covers most vehicle components except items that tend to wear out over time.^[3]

Restrictions, limits, and deductibles also vary between plans. For example, some plans may cover labor only up to a certain amount or may require you to get repairs done at the dealership.

What an extended car warranty excludes

Most extended car warranties don’t cover routine maintenance, such as regular oil changes. And service contract providers may void coverage for other issues if you don’t follow the manufacturer’s maintenance guidelines.

Most plans don’t cover repairs that arise from regular wear and tear, like replacing brake pads or windshield wipers. But some comprehensive contracts may offer coverage for these maintenance services. Most contracts won’t cover pre-existing conditions or problems that arise from negligence, alterations, or abuse of the vehicle.

Should you purchase an extended car warranty?

In general, people consider purchasing an extended car warranty for two reasons:

• The service contract is likely to save you money on repairs in the long run.

• The warranty provides reassurance that your finances are protected in case of unexpected repair costs.

Before purchasing an extended car warranty, evaluate and compare coverage, limits, and restrictions relative to the price — some extended warranties provide more value than others. You can use AAA’s Your Driving Costs Calculator to estimate the expected repair bills.

You’re more likely to save money with an auto service contract if you own a high-end vehicle that’s expensive to repair. For most other vehicle owners, setting aside a vehicle maintenance savings fund may be a better financial strategy.

But you may decide that a predictable monthly cost is worth the protection from an unexpected repair bill, even if you end up paying more over time. For example, if you’re on a budget, buying an extended warranty might be a good choice.

Extended car warranty pros and cons

Whether you’re thinking about extending coverage for a new or used vehicle, here are some advantages and disadvantages to consider:

Cost of an extended car warranty

Extended car warranties often cost up to several thousand dollars, according to the FTC. Data from quote analysis and surveys of contract holders puts the average total price of an extended vehicle warranty between about $2,500 and $3,000. But the price of a service contract varies based on the vehicle and other individual factors.

Factors that affect warranty costs

Extended warranty costs vary depending on the following factors:

• 

  Vehicle type and age

  Vehicle make, model, and age affect the likelihood and cost of common covered repairs.

• 

  Mileage at time of purchase

  Service contract costs are based on your car’s mileage. It may cost less to purchase an extended warranty when your car is new, though the coverage may not kick in until years later.

• 

  Type of warranty

  You’ll generally pay more for a plan that includes bumper-to-bumper coverage or robust extras than for a plan with more limited coverage.

• 

  Length of warranty

  Costs vary depending on the number of years or miles covered under the service contract.

• 

  The provider you choose

  Some providers offer more affordable plans than others, so you’ll want to compare costs. But you shouldn’t necessarily go with the cheapest plan — pay attention to restrictions, limitations, and the company’s reputation.

Types of extended car warranties

You have options when it comes to where and when you buy an extended car warranty and the type of plan you choose, including these different types of warranties:

• Powertrain: A powertrain warranty covers the major systems that power your car, such as the engine and the transmission. Some original factory warranties cover these components for up to 10 years.^[5]

• Bumper-to-bumper: This type of extended warranty offers more comprehensive coverage, reimbursing you when additional components break down, such as your air conditioning or electrical devices. Most manufacturer warranties only offer bumper-to-bumper coverage for three years or 36,000 miles, but some last longer.

• Rust and corrosion: Drivers in coastal places may consider a rust and corrosion warranty, which typically covers damage from rust when it perforates the sheet metal on your car’s body.^[6]

• Emissions: By law, car manufacturers include an emissions warranty with new cars, which covers select components of your emissions control system. If your car doesn’t pass your state emissions test during the first two years or 24,000 miles, your factory warranty will pay for the repairs. In some cases, coverage continues for up to eight years. Some extended warranties also include this coverage.

• Manufacturer’s: Vehicle manufacturers typically offer extended manufacturer’s warranties for both new and used cars. The coverage is often similar to the original factory warranty with the addition of a deductible. Car dealers may issue these extended warranties and often finance the cost as part of your monthly car payment.

• Third party: Third-party car warranty companies vary widely, with some offering great repair coverage with extras like rental car coverage and others only providing basic protection. Be on the lookout for scam third-party extended warranties.

Extended car warranty vs. mechanical breakdown insurance

Both extended car warranties and mechanical breakdown insurance are optional types of coverage. While an extended car warranty is available from a dealer or third party, auto insurers are the main source of mechanical breakdown insurance.

Mechanical breakdown insurance covers mechanical failures that a warranty often doesn’t protect. But it’s typically only available for newer or low-mileage cars.

Like an extended car warranty, mechanical breakdown insurance doesn’t typically cover normal wear and tear or routine maintenance, and policyholders are responsible for paying a deductible. But mechanical breakdown coverage is often cheaper and provides protection on a pay-as-you-go basis.

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How the extended car warranty claims process works

The claims process varies between extended warranty providers. But generally, you’ll take these steps to file a claim:

1. Contact the service contract provider. Call the extended warranty company to initiate the claim. Get pictures of the issue, if possible.

2. Take your car to a licensed repair shop. Bring your car (or have it towed) to a licensed mechanic. Check your policy for any restrictions on where the vehicle can be repaired under the extended warranty. For instance, you may be limited to certain facilities, like the dealer where you bought the vehicle.

3. Get a quote. Follow any steps required to have your vehicle assessed. For instance, the repair shop may need written authorization before inspecting your vehicle and require submission of a written quote.

4. Submit additional information for review. Depending on your provider, you may need to show receipts that prove you’ve maintained your vehicle before repairs were needed.

5. Pay your deductible and authorize the repair. If your claim is approved, you’ll likely need to authorize the auto shop to complete the repair work. You’ll also need to pay your deductible. Your warranty provider will cover the rest, either by paying the repair shop directly or sending you reimbursement.

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