The Financial Value of an Extended Car Warranty

Extended car warranties tend to be inexpensive compared to the cost of the vehicle you are purchasing, so you may think the warranty is automatically worth the cost. Unfortunately, it is not that easy. Extended warranties often include details that you might not be aware of regarding what they cover and where repairs might need to be done.

Purchasing an extended car warranty is excellent from the salesperson’s perspective but may not be the best in financial value for the consumer, depending on the circumstances. In many instances, buying an extended car warranty is not the best idea because it may not return on the financial investment you make in purchasing it. Let’s dive into what makes an extended car warranty worthwhile or not.

The Value of an Extended Car Warranty for the Average Consumer

According to the FTC, extended warranties are service contracts because they are an extra fee and are sold separately from the item. Extended warranties differ from manufacturer warranties because warranties from the manufacturer are included as part of the cost of your car.

Extended warranties may provide immediate coverage or may activate once the manufacturer warranty ends. Typically, these types of contracts only extend for a few years, so they may or may not be worth the financial value.

Something else to remember is, if you were to purchase the entire warranty with a credit card instead of making monthly payments or breaking it up alongside your auto loan, you might get an extra couple of years out of it. You’ll have to check your credit card policies to see what they cover or how they can help with coverage.

Questions to Ask Before Buying an Extended Car Warranty

Ask yourself plenty of questions before deciding to purchase an extended car warranty. Think about the car you want to buy and whether you’ll genuinely need a warranty. Remember to ask about the coverage details or for a copy of the warranty you’re thinking about buying.

You will need to look at when the warranty will expire. If it is set to expire before you think you will need what it covers, it is probably best to decline the offer.

You will also want to know when the warranty becomes active, in addition to any deductibles that may or may not be included. Check for limits to the coverage, as these can be monetary and/or limited to specific repairs. What you find may or may not be worth the financial value for you.

You may also be required to visit specific locations for repairs, so you will want to make sure that this is convenient for you. For example, if you purchase a vehicle from a dealership in a city 200 miles away from where you live and their warranty requires you to visit them for repairs, it is probably not worth it.

Determine if You Will Need an Extended Car Warranty

Above everything else, when you purchase a car, you want it to be dependable. It does not matter if you are buying a used car or a new car; the goal stays the same.

Warranties, by nature, are created to offer the possibility of extending coverage on a new car and more importantly, providing coverage on a used car. For some, buying an extended warranty is for peace of mind, and if that’s what you want, go for it.

Keep in mind, though, that you will probably pay more for the coverage than the benefits you will get out of it. While warranties are not too expensive, they tend to cost more than the typical repairs you are likely to deal with after your purchase.

To help you bring the cost of a warranty more in line with the repairs you might use it for, you can negotiate with your salesperson. If you decide to decline an extended car warranty, Consumer Reports has an excellent guide to car reliability to help you choose a car that will require less repair in the future.

Choosing an Extended Car Warranty Company

If you decide to buy an extended car warranty, you will want to consider a few things as you select the company with the most significant financial value. For example, the best companies will offer you a full refund within the first month or two if you haven’t filed any claims. You should not be stuck with something you are not happy with, so be sure to ask about that.

When you read the warranty a company offers, look for any exclusions for what is not included in your coverage. Overheating, as an example, can cause additional issues if a significant mechanical problem occurs. If the warranty does not cover damages from overheating, do not buy it. You should also be able to take your car to any ASE-certified mechanic and still have coverage apply.

Specialty items are another thing that comes up every so often, as they can be expensive to pay for on your own. Check for coverage of specialty items on the warranty, as it can contain language that excludes these items. Specialty items also vary by car, so you will want to research what counts as a specialty item for the vehicle you want to buy.

A Few Last Thoughts on the Financial Value of Extended Car Warranties

Alternatively, some people may want the convenience of knowing that major repairs will be covered if something happens especially when it comes to a luxury car. Whatever you choose, remember to do your research, compare costs, and choose a warranty that will give you what you need at a price that reflects a financial value you can live with.