Select Page

Whether you’re buying a new or used automobile, a dealership may suggest an extended warranty. The argument for an extended warranty sounds good, which is that you’ll potentially be able to avoid spending a lot of money on expensive repairs. However, the reality is that most people who do end up purchasing extended warranties don’t use them, and even if they do, these individuals often say that they’re not likely to purchase another.

Extended warranties do have their place, but they are often not as helpful as advertised. If you’re considering an extended warranty, here’s what you should know:

How Extended Warranties Work

When you purchase a new vehicle or a used vehicle that is only a few years old, your automobile will be covered by a manufacturer’s warranty. If anything on the vehicle that is covered by the warranty, which normally includes the power train at a bare minimum, needs repairs, they are handled by the manufacturer at no cost to you. An extended warranty is similar to this, but you have to pay for it, and you can purchase one from a manufacturer or a third-party.

Extended warranties are somewhat similar to standard automotive insurance. The level of coverage that you opt for will determine how much your extended warranty costs. Additionally, you may have to pay a deductible when you need repair work done, but deductibles are normally fairly low, and most don’t exceed $100.

If you decide to purchase an extended warranty, you’ll usually be able to choose between three levels of coverage. The lowest level of coverage is a power train warranty, and it will cover repairs for components required to power your engine. A bumper to bumper warranty is one that will cover just about any repairs that may be required, and these are considerably more expensive. Most extended warranty providers also offer mid-level warranties that fall between powertrain and bumper to bumper coverage.

When An Extended Warranty Will – And Won’t – Save You Money

Many dealerships argue that you need an extended warranty to save you money on expensive repairs that may need to be completed after your vehicle is no longer covered by the standard manufacturer’s warranty. In theory, you could save a significant amount of money with an extended warranty. The problem is, this will normally only be the case if you purchase a vehicle that is prone to needing repairs.

On average, you can expect to pay between $1,000 and $2,000 for an extended warranty. Less expensive warranties are usually powertrain warranties that are for vehicles that are more reliable, less expensive and are still covered under the original manufacturer’s warranty.

This may sound like a reasonable amount, but about half of people never use the protection they purchased. Further, the repair costs that are covered are usually less expensive than the cost of the extended warranty. It is not uncommon for people to spend hundreds of dollars more on the cost of a warranty than if they had paid for repairs out of pocket.

Individuals who are most likely to benefit from an extended warranty are those with less reliable vehicles or those who purchase bumper to bumper coverage. Of course, what that means is that if you purchase a vehicle with higher reliability ratings, you probably won’t need to purchase an extended warranty.

Most financial experts recommend that you put the money that you’d use to purchase an extended warranty into some sort of interest bearing account. If you need the money for repairs, you’ll have it, and you won’t run the risk of wasting the money on a warranty you won’t use.

Getting A Good Deal On An Extended Warranty

Since there are situations where an extended warranty can be beneficial, it’s a good idea to know how to get a good deal on one. The first thing that you should know is that you don’t have to go through a dealership to purchase one, and according to the Federal Trade Commission, it’s usually not a requirement of a vehicle purchase.

This means that you can comparison shop for an extended warranty after you’ve purchased a vehicle. However, you should buy one before the manufacturer’s warranty expires because costs rise significantly after this occurs. In addition to buying a warranty from a dealership, you can also usually purchase one directly from the manufacturer or a third-party.

If you do choose to buy one from a dealership, it may be a good idea to avoid bundling the cost of the warranty into the price of the vehicle unless you can get a low or 0 percent interest rate on the cost of the warranty. Otherwise, you’ll end up paying interest on your warranty, which will make it less likely to save you money.

You should also be wary of scams. It is not uncommon for people to receive calls from third-parties who make it appear that they are calling on behalf of an automobile manufacturer and offering an extended warranty. In many cases, these organizations won’t let you see the contract until you’ve agreed to it, and you’ll frequently discover that a large number of repairs aren’t covered when you do get the contract.