What Are the Pros and Cons of Extended Car Warranties?

Should you get an extended warranty to pay for repair bills? Or should you put that money into a savings account instead? Looking at the pros and cons of extended car warranties will help to answer that question. Our goal is to give you tools to be a smarter shopper when you’re looking to purchase an extended warranty.

To some degree, the pros and cons of extended car warranties depend on the companies that offer them. There are definitely companies that have more cons than pros. On the other hand, a number of reputable companies consistently pay out for repairs and make happy customers.

Check out our review of the best extended car warranty companies to find out more information on the top providers in the industry. If you’re considering a warranty, your best bet is to get a few quotes. That way you can decide if the service is something you want by considering the real life costs of the plans — personalized to you.

An extended car warranty refers to mechanical breakdown coverage offered by a vehicle manufacturer. However, this term is often mistakenly used to describe coverage from third-party companies. Independent providers offer similar protection through vehicle service contracts, but we’ve used the terms interchangeably in this article for convenience.

The Good and the Bad of Extended Car Warranties

Below, we’ve given an overview of the pros and cons of extended car warranties. Extended auto warranties can be a good financial investment for some drivers, but it depends on a few different factors.

Pros of Extended Car Warranties

Let’s first look at the pros of extended car warranties.

Pro: Peace of mind. One of the biggest benefits to having an extended warranty is peace of mind. If a covered part breaks down, you don’t have to deal with the cost of repairs. You also don’t have to negotiate with the dealership or mechanic on auto repair costs. You can spend your time enjoying the drive instead of worrying about your powertrain warranty expiring next month.

Pro: Budgeting for repairs is easier. With an extended warranty, you make a monthly payment for the company to cover certain repairs. Sometimes, a repair may cost a few hundred dollars. At other times, a major repair could cost $2,000 or more. Instead of paying for repairs like this all at once, the cost has essentially been broken up into many smaller payments. This makes it easy to predict your budget over time.

Pro: Extra perks are usually included. Common perks include roadside assistance, trip interruption and rental car coverage. Car insurance companies can also provide similar services, but these are usually sold as add-ons and don’t come with the standard coverage.

On the other hand, extended warranty companies usually include these perks with all coverage plans. CARCHEX provides these three benefits on all its plans, as does CarShield. Roadside assistance from CARCHEX includes towing, spare tire assistance, lockout service, jump-starts, fuel delivery and winching. An Endurance auto warranty has a one-year program that includes key fob and tire replacement benefits.

Also, many providers allow you to use roadside assistance anytime your car is disabled. In other words, you don’t need to have a covered breakdown to use roadside assistance. However, extended warranty companies usually will only provide rental car coverage and trip interruption reimbursement after a covered mechanical repair.

Pro: An extended warranty can actually save you thousands. When looking at the pros and cons of extended car warranties, the big question is whether they can save you any money. On average, extended warranty contracts can cost between $1,000 and $3,000. It’s possible you can get many more repairs covered than the cost that you put into the warranty.

Repairs don’t happen every day, but they do happen. According to RepairPal, people who drive cars from the most reliable brands pay between $428 and $551 annually for repairs and maintenance. Volvo owners pay about $769 per year, and BMW owners pay $968. Of course, these are just average numbers over time. You could drive for years without any major issues then encounter a $1,802 head gasket repair or $1,498 catalytic converter replacement.

If a repair is covered under contract, the warranty provider will pay for it unless total repairs have exceeded a maximum amount. For most companies, the maximum amount payable is equal to your car’s value, which makes sense.

Pro: Easy transfers and cancellations. Any reputable extended warranty company will have a 30-day guarantee. You can cancel anytime within 30 days for a full refund, as long as you haven’t used any funds for repairs. Beyond that time, you can still cancel the extended warranty. You’ll just get a prorated refund based on the time, mileage and repairs received.

Another nice thing is that most contracts are transferable to a secondary owner. This can help you get your full asking price when you sell your car. You may have to pay a small fee to transfer the contract.

Pro: No paperwork. With an extended auto warranty, all you have to do is connect your repair shop to the claims department of your warranty company. After that, the warranty provider will negotiate with the repair shop on cost. If the repair is covered, the provider will pay the shop directly, and you will pick up your car after it’s fixed. There’s no paperwork to fill out at the repair shop.

Pro: Genuine parts and certified technicians. If you get an extended manufacturer’s warranty, it will cover genuine parts and certified technicians at the dealership. For example, a Dodge extended warranty is fulfilled by Mopar®, the parts manufacturer for Dodge, Chrysler, Jeep and Ram.

When you go in for a repair, your Dodge will get new or remanufactured Mopar parts. Some third-party companies will also allow you to go to your dealership for repairs and get service from certified technicians.

Pro: Coverage and prices are customized. It’s just a fact of life that BMW will cost more to repair than a Toyota. So, an extended warranty for a BMW is also going to be more expensive than an extended warranty for a Toyota. Within each brand, different models and model years have different reliability ratings. Costs reflect your specific vehicle, its year and its current mileage.

Also, extended warranty providers give you a number of different plan options to choose from, each with different base costs. You can customize the length of time and mileage limit that the plan covers. You can mix and match those limits, too. If you don’t drive very much on average, you could get a warranty for 5 years/50,000 miles. On the other hand, you can get a warranty for 5 years/80,000 miles if you do drive a lot.

Like car insurance, you can choose different deductible amounts for an extended warranty. A higher deductible will lower your overall cost. You can usually choose $0 to $200 deductible amounts.

Coverage usually costs more as cars age. So, purchasing an extended warranty is worth it on a new car because you’ll get the best price for that coverage. In general, your car is “new” if it’s still under the factory bumper-to-bumper warranty and you’re the original owner.

Cons of Extended Car Warranties

Like we mentioned above, extended car warranties aren’t always the best option for some drivers. Let’s go over the cons of these protection plans.

Con: There can be many exclusions (and you need to know them). Even the most comprehensive warranty won’t cover every single item on your car. The highest bumper-to-bumper coverage option is called an exclusionary warranty, and it covers everything except a list of excluded items. Other plans use stated-coverage terms, which list out every item that is covered.

The No. 1 problem people have with extended warranties comes from a misunderstanding of what was covered. Maybe the salesperson didn’t cover the exclusions, or maybe the contract was so dense it was hard to understand. In any case, the warranty company has to comply with its written contract. Take the 30-day guarantee period to read the contract thoroughly, and go over it with friends or family members if you have any doubts.

Common exclusions include:

• Wear and tear
• Damage from lack of maintenance
• Scheduled maintenance items
• Cosmetic items
• Damage to covered parts caused by non-covered parts

If you know what the exclusions are before you buy the plan, you won’t be surprised if a repair is declined by the provider.

Also, extended warranties don’t cover pre-existing conditions. Because of this, there’s usually a waiting period of 30 days and 1,000 miles. That means you can’t just go out and buy a plan when your check engine light comes on. Well, you can, but it won’t cover whatever problems your car has at the moment.

Con: You may not use it a lot. There’s always a chance you won’t use the plan to its full value. Let’s say you bought a $2,000 warranty contract and paid $83 per month over 24 months. If the plan only paid for $1,500 in repairs by the end, you wouldn’t have been able to use its full value.

However, there’s something else to think about, too. What if one of those repairs was $1,200? Some drivers may prefer to pay a little more over the long term and avoid expensive repairs, even if the plan doesn’t break even.

Con: A savings account may make more sense. If you don’t want to take that risk, you might consider saving up your own money to cover repairs in the future. Remember, the money you pay to an extended warranty company doesn’t go into a specific account to cover every repair you have. It only covers repairs listed in the contract.

Con: It can be hard to find the right provider. It takes work to find the right warranty provider. You should get quotes from at least three companies, but it’s important to choose the right ones to get quotes from in the first place. You don’t necessarily want to find a cheap plan, but you want to find a plan that provides good value.

Spend some time comparing different companies like CARCHEX vs. Endurance, and see what each offers for extended warranty coverage and perks.

Con: You need detailed maintenance records. All extended warranty contracts require you to maintain your car according to its service schedule. When you bring your car in for a repair, the warranty company can ask you to provide the service history.

If you should have gotten an oil change 3,000 miles ago, the warranty provider can decline coverage for any issues that would cause. The same is true for any lack of maintenance that would cause damage. Even if your car isn’t damaged, a provider may decline coverage just because you didn’t follow scheduled maintenance.

Con: Bad providers bring the good ones down. There are dozens of extended warranty companies out there. Unfortunately, many of them don’t provide good value for their customers. Some companies even make their contracts purposely convoluted and try to avoid paying for any repairs at all costs.

Companies like that give the industry a bad reputation. To be sure, there are reputable extended car warranty companies out there. But how do you find them? We suggest using the same techniques you already use to shop for other things online.

Look for companies that have many customer reviews and good overall ratings from those reviews. Also, look for companies that have strong industry endorsements. Never buy a plan without downloading a sample contract and reading the entire thing. It might be tedious, but you have to read the fine print. If the company won’t send you a sample contract before making a purchase, that’s a red flag.

Are Extended Car Warranties Worth It?: Conclusion

Now that you know some of the pros and cons of extended car warranties, you can make a better decision going forward. Knowing what to look for is half the battle. At the end of the day, we think an extended warranty is worth it if you get one from the right company.

Reputable companies include Endurance, CARCHEX, CarShield, and autopom! All of these companies offer sample contracts and provide guarantee periods for you to review the coverage. They’ve also paid hundreds of millions in claims and offer a range of perks.

Comparison shopping is the best way to buy an extended warranty. Get quotes from different providers to find the plan that fits your situation.

Pros and Cons of Extended Car Warranties: FAQ