Extended Vehicle Warranties: Worthwhile Protection or Waste of Money?

You’ve spent a couple of hours going back and forth with a salesperson on the price of a new vehicle and the value of your trade in. Now you’re sitting in the finance manager’s office, where he’s putting all the paperwork together and pitching last-minute “add on” options. One by one you turn all of them down until it comes to an extended warranty.

The manager starts putting the pressure on, saying while your manufacturer’s warranty covers four years or 50,000 miles, most major repairs start happening after that time. One transmission replacement in year 7 alone could cost more than the total price of the warranty. And if you add the cost of the warranty to your auto loan, it will “only” increase your monthly payment by $30. Should you go for it?

The answer is...“maybe.”

What are extended warranties anyway?

Extended warranties (also called service contracts) either take over where manufacturer's warranties leave off or cover items not otherwise included. Each extended warranty and service contract is different, so you will have to read the information carefully to find out what's covered and what's not.

For some people, extended warranties and service contracts offer peace of mind. For others, they're just another needless expense. If you’re thinking about getting a new vehicle and you’re not sure about whether you’ll want to spring for an extended warranty, think about the following questions—and get the answers you need from the dealership.

How long will you keep the car?

If you’re someone who changes vehicles every few years it makes little sense to buy this coverage.

How does the extended warranty differ from the manufacturer’s warranty?

Most manufacturers' warranties cover at least the first three years of the car's life, and most are quite comprehensive. That’s why it’s important to understand exactly what’s covered under the extended warranty.

Some extended warranties are extremely limited and don't cover many common and expensive repairs. Others may simply extend the manufacturer’s warranty by another year or two. If you don’t drive that many miles per year and keep the car well maintained an extended warranty might be overkill. 

Does it cover electronics?

With sophisticated computer monitoring systems and space-age multimedia displays, GPS systems, backup monitors and collision control features, today’s vehicles are more dependent on electronics than ever before. And fixing these technologies can be more expensive than replacing an engine or transmission. An extended warranty that doesn’t cover the cost of replacing electronics for at least three years isn’t worth it.

What does the warranty NOT cover?

Generally, neither manufacturers’ nor extended warranties cover “wear and tear” expenses like brake pads and rotors, tires and batteries and mufflers and exhaust systems.

Are there conditions that could void the warranty?

Some warranties require you to perform certain kinds of regular maintenance, like oil changes and all-wheel alignments, at certain mileage intervals, or risk voiding the warranty. Some many even require you to have this maintenance done at a dealership.

Does the plan have a deductible?

Not all plans are “zero-out-of-pocket” options. Some may require you to pay a deductible.

How are covered repairs paid for?

Some warranties require you to pay for covered repairs and then seek reimbursement, rather than pay claims directly. You also may not be able to choose which mechanic performs the repairs.

How much does the extended warranty cost?

Extended warranties can add $2,000 or more to the cost of a new car. If you finance it with your auto loan you’ll also pay interest on the principal.

Is the price of the extended warranty negotiable?

Like almost everything in the car buying process, the price of an extended warranty is generally negotiable. You may be able to get as much as 50 percent taken off the price of the warranty if you bargain with the dealer. This is especially true if you can present information from another source about a less expensive warranty package and explain that you will buy the dealer's warranty only if he or she can beat the price.

Do you have to buy the extended warranty at the same time you buy the car?

You don’t usually have to buy the extended warranty at the time you purchase the vehicle—one reason why dealers try to convince consumers to go for it at the time they’re signing the sales agreement. Sometimes you’ll have a certain period of time (like a week or thirty days) to buy it from the dealer. In some cases you can purchase the warranty from a different dealer than the one who sold you your car.

There are also services available on the Internet that can help you find extended warranties for your car, often at discount prices. If you think you're interested in purchasing an extended warranty, you may want to do some research before you purchase your car. You may be able to find a better price (or a better warranty) than the dealer offers.




Joelle Spear is a financial advisor located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or at [email protected]


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