Extended Car Warranties: Everything You Need to Know

When we buy a new car, we hope – and expect – that it will last a long time and that it will give us many happy miles of driving without lots of trips to the garage. New cars are covered by a warranty, but after the warranty expires – or when buying a used car – we don’t have that peace of mind.

The answer to this problem could be an extended car warranty – so here is our unlimited guide.

What is a warranty and how does it work?

Let’s start with the basics. What is a warranty? A warranty is a guarantee by the manufacturer that a car will not break down or give you any problems within a certain time period or number of miles driven.

If the car breaks down or anything goes wrong before the warranty expires, the manufacturer will be responsible for repairing the car for you – you won’t have to pay for it.

However, once the warranty expires, any problems that may occur become your problems – and you will need to cover the costs yourself.

What are the different types of warranty?

There are many different types of warranty. Let’s have a look briefly at some of the main types – although there are also others we won’t discuss here.

  • Bumper-to-bumper

The most comprehensive type of warranty is known as a “bumper-to-bumper” warranty – the name comes from the fact that it covers all components in the car between the bumpers, i.e. everything.

In fact, it’s usually not quite everything. While it does include most things, items that require regular maintenance like fluid top-ups and oil changes are not included.

  • Powertrain warranty

This covers the engine, the transmission and anything that leads to the wheels. Sometimes, cars come with an initial bumper-to-bumper warranty, followed by a longer-lasting powertrain warranty.

  • Drivetrain warranty

 

A drivetrain warranty covers transmission, driveshaft, axles and wheels – but not the engine. These warranties tend to be much longer than powertrain warranties.

  • Wear and tear warranty

This is a good option if you are leasing a car since if the car has excessive wear and tear when you return it, under the terms of the leasing arrangement, you will have to pay for it. If you have wear and tear coverage, you won’t need to worry about it as the insurance company will pay.

What is an extended warranty?

An extended warranty is additional cover taken out by a car owner to cover the car after the initial manufacturer’s warranty expires. They are also sometimes referred to as vehicle service contracts – which in fact is technically a more appropriate term since they aren’t really warranties at all.

They are typically taken out when buying a used car that has no warranty left or to extend the bumper-to-bumper warranty on an existing car after the original manufacturer’s warranty has expired.

You can also choose to buy an extended warranty when you first buy a new car – this way, you know that you will be covered even when the standard warranty period comes to an end.

In all cases, the reason for taking one out is the same – it offers peace of mind and limits your exposure to unexpected repair costs down the line.

Extended warranties are not always provided by the car’s manufacturer – in fact, although they can be, they are more often provided by a third party.

When can you take out an extended warranty?

Extended warranties can be taken out at any time. This includes before a car’s initial warranty has expired, when buying a used car or even after you have owned a used car for some time.

However, in these cases, there is often a stipulation that the warranty cannot be claimed for the first 30 days or 100 miles. This is to stop people only applying for a warranty after something has already gone wrong.

This is very similar to health insurance in that you can’t wait till you get sick to take out a policy – you must have the policy in place before you get sick in order to be covered.

What does an extended warranty cover?

Extended warranty policies vary, and you need to be sure you understand all the details when you buy the policy. Above all, make sure you read and understand the small print in detail, or you may discover too late that you are not covered for something when you thought you were.

For example, brakes, cooling systems and electronics are items that may or may not be covered. Other things to look out for include the engine, the suspension system, the fuel and ignition system, the air conditioning system and the steering.

However, this list is not exhaustive, and you should read the details thoroughly before you sign a contract.

What do extended warranties usually not cover?

There are several things that are usually not included in most extended warranties, and these are usually things that come under the category of “wear and tear”. This would include paintwork, interiors, tires and so on – things that you would expect to suffer some damage through normal use.

What can void a warranty?

When taking out a policy, you should also pay careful attention to things that might invalidate the warranty. This might include items you are expected to replace or service regularly.

For example, failing to change the oil could invalidate the warranty, as could not changing the filters. Not using the recommended grade of gasoline in a car will also commonly void the agreement.

Another thing to pay attention to is any limit on mileage – if there is a limit and you exceed it, you will also invalidate the warranty.

Furthermore, there are often restrictions on what you can use a vehicle for. For example, using the vehicle as a taxi or for driving for companies like Uber may be forbidden in the terms and conditions – if you plan to use your vehicle for commercial purposes, be sure to check it out beforehand.

How much does it cost and what affects the price?

There are many factors that can affect the amount you need to pay for the warranty. A warranty for a low-end used car will cost far less than one on a more expensive, high-performance model.

Similarly, the level of cover you have will also depend on how much you pay – you can choose what you want the extended warranty to cover when you buy the policy.

There is often a limit to how much can be paid out. Usually, you can’t claim more than the value of the car, but the upper limit will also be determined by how much you pay for the policy.

With so many variables, prices can range from $500 a year at the bottom end of the scale right up to $4,000 and more at the top.

Why would I want to pay for an extended warranty and is it worth it?

The simple reason for taking out an extended warranty is to have the extra peace of mind that, if your vehicle breaks down or otherwise requires expensive repairs, you won’t need to find the cash to foot the bill.

This might seem to make sense, especially if you are buying a used car. When buying a used car, you can never truly know how the previous owner or owners treated it or how likely it is to break down and need repair work.

Even with a new car, there is a reason why a warranty runs out when it does. After that point, the manufacturer is no longer willing to offer any guarantees because that is precisely when a vehicle is likely to start misbehaving and causing problems. This is inevitable, no matter which car you drive.

Seen like this, taking out extra cover seems logical.

A good idea? – Not so clear cut

However, even though it might seem like a good idea at first sight, if you look at things in more depth, you might begin to think otherwise.

Depending on your vehicle and the policy you take out, you may end up paying several thousand dollars for your extended warranty.

While you are almost certain to need some repair work done on your vehicle, statistically speaking, you are unlikely to need to have work done that will set you back as much as the extended warranty costs you.

For example, the average cost of a policy is around $1,500 – but the average amount of repair work that is claimed is only $180. When stated like this, these numbers are actually quite shocking.

Of course, if you don’t take out a policy and you are one of the very unlucky ones who end up with a huge bill to pay on some unexpected repairs, it is very unfortunate.

However, either way, you are gambling. If you take out a policy, you are betting on having high repair bills to pay. If you don’t, you are betting that you won’t. And in this case, the smart bet is that you won’t.

After that, the choice is yours – although see below for a couple of tips on how to mitigate your risk.

Tricks and loopholes

Unfortunately, the world of extended warranties is somewhat murky, and agents who push them have something of a notorious reputation – often well-deserved, it may be said.

Some attempt to trick or scare people into buying coverage they don’t need; others can be very aggressive with their sales techniques.

Once you have signed up to an extended warranty, some less scrupulous companies will also do everything they can to avoid paying up, citing obscure loopholes in the contact that you could hardly have spotted yourself without professional legal help.

These kinds of practices alone are a good argument for not taking out this kind of policy since in many cases, the policy won’t even give you the complete peace of mind you seek since you will always be worried about whether the company will pay up if something actually does go wrong.

Are there any alternatives?

If the costs, pitfalls and loopholes associated with extended warranties have turned you off the idea, here are some alternative options that you can pursue instead.

  • Create your own repair fund

Many experts advise against paying for an extended warranty that is statistically likely to cost you more than you get back from it in repairs.

Instead, a better idea is to create your own repair fund. To do this, calculate how much you would pay each month for an extended warranty and set this amount aside for repairs that may be required down the line.

The big advantage with this is that in the event that your car ends up running trouble-free and doesn’t require any work, you won’t have wasted the money on a policy you don’t use. However, if you do need repair work, you will have the money ready to pay for it.

The only downside is that if your car breaks down early on before you have saved up enough money in your “pot”, you will have to find the money for repairs from somewhere else.

  • Look for the most reliable brands and models to buy

You can also limit the risk of needing repair work by choosing a vehicle that is well known for its reliability. Check which cars score well in terms of reliability before buying.

Also, note that some manufacturers that are renowned for making reliable cars also offer very generous warranties as standard. These warranties can be much longer than those offered by their competitors, and buying one of these will mean you don’t need to consider an extended warranty.

AAA membership

Another option is to join the American Automobile Association, the AAA. This association offers some of the benefits of an extended warranty, giving you similar peace of mind at a lower price.

Membership entitles you to 24-hour roadside emergency coverage, even if the vehicle you are driving is not your own. However, the AAA does not cover your repairs – although it does entitle you to a discount.

For some people, this could also be an option worth investigating.

Best avoided – but buy carefully if you feel you have to

All things considered, we would generally advise against taking out an extended warranty. Most people won’t actually claim as much money as they pay into the policy. However, if you feel an extended warranty is necessary, shop around – and make sure you read the small print carefully.

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