Five Questions To Ask Before You Say Yes to an Extended Warranty

Five Questions To Ask Before You Say Yes to an Extended Warranty

How To Prepare for the Toughest Sell in the F&I Room


"I'm glad we could make a deal," the salesman says, shaking your hand.

But just as you've breathed a sigh of relief, you realize that you are walking into the Finance and Insurance (F&I) office to finalize the contract. Once inside that room, the F&I manager will likely offer you things like paint protection, prepaid maintenance plans, theft-recovery systems and a road-hazard warranty for your tires. But the biggest product he'll probably push will be the extended warranty for the car itself. Extended warranties, also known as "service contracts," can provide peace of mind to some car buyers. Car dealerships like them because they are an additional profit center for the business. As with any decision in a car purchase, it is important for you to research and weigh the benefits of the product

An extended warranty is repair coverage that kicks in after the typical manufacturer bumper-to-bumper warranty has expired. This extended warranty will cover most major breakdowns and will — in theory — stabilize the cost of repairs, since the price of parts and labor tends to fluctuate over time. It is important to note that you have the option to purchase this warranty any time before the manufacturer warranty expires. You can even purchase an extended warranty after the manufacturer warranty expires, although the price will go up considerably.

You might already have asked the five questions that should precede the conclusion of a new-car deal. But now it is time to ask yourself five extended-warranty questions. They'll help you decide whether to purchase an extended warranty, and they'll also help you get the best price.

Warm-Up Question: Do you plan on keeping the car for a long time?
This is a common question that the F&I manager will ask, and it's worth your consideration. Do you get tired of a car by its third year? If so, paying for an extended warranty doesn't make much sense, since the manufacturer warranty will still likely be in effect. But if you are someone who drives a car until the wheels fall off, the extended warranty might be worth considering. Nevertheless, go through the rest of the questions here before making a decision primarily based on length of ownership.

1. Who stands behind the warranty?
Many dealerships offer third-party warranties from companies with varying track records. If you are going to purchase an extended warranty, make sure it is backed by the automaker, not just the dealership or some other company. You can use a manufacturer-backed extended warranty at any dealership across the country. A third-party warranty might be good only at the dealership that sold it to you.

If you are considering coverage for a specific purpose, such as a road-hazard policy that isn't offered by the automaker, check for online reviews to see what others are saying about it.

2. Have you shopped for the best price?
It's unlikely that an F&I manager will let you shop around while you're sitting at his desk with a pile of purchase paperwork between the two of you. This research is best done prior to your dealer visit on the day that you finalize your purchase. If the car purchase is already a financial handful, you can also shop for a better price after the sale.

Get a price quote from the F&I manager for the warranty he's offering. Then shop it around by phone with F&I managers at other dealerships in the same way that you compared prices on the car you're getting ready to buy.

The F&I manager at the dealership that has your car might say that the price of the extended warranty is not negotiable, but that might not actually be the case. If you check with other dealers, you'll find that some of them will have a lower asking price for the same product. Or they might be more willing to negotiate.

Take a look at this article to learn the bargaining strategies that an ace negotiator employs when he shops for an extended warranty.

3. Do you know what's covered?
An extended warranty isn't the cure-all that some dealers make it out to be. Many wear-and-tear parts — items that will eventually break or wear out — are not covered by most vehicle extended warranties.

To complicate things even further, many extended warranties come in coverage tiers (silver, gold, platinum, for example), each with its own price and level of coverage. Take the time to read the fine print to determine what is and isn't covered.

You must also determine who will front the cost for the repair bill. Are the repairs fully covered? Do you have to pay a small deductible? Or do you have to pay for the repairs up front and get reimbursed later?

4. Will you have peace of mind if you don't buy it?
The answer here is all up to you. If you're someone who will always have a nagging feeling that you should have bought the warranty, go ahead and get it. Sometimes there's no price tag you can put on peace of mind.

On the other hand, if you are confident that you've purchased a reliable vehicle, you can walk away from the F&I office and not give the extended warranty a second thought.

But what if you don't know anything about the car's reliability? There are a couple of options available here.

Edmunds has reliability information in "reliability" tab in the used car model overview. New-car shoppers should scroll down to the bottom of the overview page and then click on the "reliability" link. For an example, scroll to the bottom of this page. You might not find the exact model year of the car you're purchasing, but the information on the site can give you a rough idea about that model's reliability. Edmunds does not have records on every vehicle, but the ratings listed are a good place to start. You can also find discussions of vehicle reliability in the Edmunds forums.

A second source is Consumer Reports, which offers reliability reports on a number of vehicles on its Web site and in its print publications. For a fee, you can browse through the reliability ratings it maintains.

5. Have you looked at your repair history?
Consider your own history with vehicle breakdowns. Have your other cars had the kinds of problems that would have been covered by a warranty? If you are considering a road-hazard tire warranty, for example, think about how many times you've had a flat tire. If there is a lot of debris on the roads in your area or if you've had several flat tires in a short span of time, a road-hazard warranty may be worth looking into. But if you can't remember the last time you had a flat, you may not need the coverage.

You also can add up how much you have spent on out-of-warranty repairs in the past and compare the total to the price of the warranty. For example, if you've paid $500 for repairs that occurred out of warranty, weigh that against the cost of the extended warranty.

You're never going to have the same repair history in any two vehicles, of course. But if you are buying a vehicle from the same carmaker, it can give you a rough idea of what to expect.

Bonus Question: Do you really need it?
Some F&I managers can make you feel that saying no to the extended warranty is like playing Russian roulette with your car. You never know when that costly repair "bullet" might strike. But new cars are more reliable than ever, and the data seems to indicate that most people might not need an extended warranty.

According to a recent J.D. Power study, overall vehicle dependability averages are good. The 2013 survey had the lowest problem rate since the study began in 1989.

Financial guru, Dave Ramsey, advises his readers to "Just say 'No'," to extended warranties and proposes an alternate solution: Set aside half of what you would pay for the warranty, and use that money to handle any car repairs that might come up.

Nevertheless, some people just aren't willing to take chances, or they prefer the convenience of an extended warranty. They're more comfortable knowing that any major repairs will be taken care of. There's nothing wrong with that. If you're a belt-and-suspenders person, just make sure you ask the right questions before you make this purchase.

To find a dealership that knows how to treat shoppers right, please visit's Dealer Ratings and Reviews.



  • marlon02 marlon02 Posts:

    Fantastic article, Ronald. Certainly some nuggets of wisdom I wish I had known when I bought my first car, but some things can only be learned with time. I'm not sure how many affordable auto repair shops you have in your neck of the woods, but we've got some fairly reasonable auto body repair in Lake Forest (California). I mean, a totaled car is going to ruin the pocket book regardless of where you live... but if one opts to not accept an extended warranty, one should at least know what other options they have before making that decision. All the same, I am printing this post to give to my daughter. She's been driving for a year now, but her used car is already getting rather worn. When she can finally afford her own, I think this information will do her well.

  • glam1 glam1 Posts:

    Wish I saw this earlier. Could have stopped my dad from buying the extended warranty!

  • mks1026 mks1026 Posts:

    As an F&I manager myself, I find that though this was a good article, there are two fallacies with it. First, the article stated the following: "You're never going to have the same repair history in any two vehicles, of course. But if you are buying a vehicle from the same carmaker, that could be a good indication of what to expect." This seems to be a little confusing as it states that you're not going to have the same repair history in any two vehicles and this is precisely the reason why extended warranties are offered because though it may seem very costly initally, the warranty is like any insurance to help mitigate potential costs in the future. The key to this statement is something that everyone can agree on and that is, no one can tell the future but the only certain thing is that in the end, it will be the customer that is left on the side of the road with a potentially huge bill waiting for them when they get towed to a shop. And let's face it, whenever any of us takes a car into the repair shop, there is a lot of trepidation because we're all afraid to see that final repair bill. In addition, after seeing the total repair bill, most customers will have the idea that somehow they've been had because they've been told that they also need additional work that they might not have needed. This is a common feeling for everyone. One way to combat that feeling in my opinion is to have an extended warranty because no matter what needs to be fixed, the warranty company will be an advocate for you because they're only going to approve the repairs that are absolutely necessary. In the end, whatever is going on with the car, the customer wouldn't have to worry because they know that they're only paying a very low deductible. The other fallacy in the aforementioned statement by Edmunds, is that the historical quality of the vehicle will determine whether or not the car will need an extended warranty. The primary reason for any offering of an extended warranty is that no one can predict what will happen in the future. This is a very dangerous statement especially in light of what has been going on with perennial stalwarts when it came to automobile qaulity with brands such as Honda and Toyota. In the end, if Honda and Toyota weren't able to remedy safety related issues, then how many other areas do they also have problems that we haven't found out about? Lastly, every single manufactuer has had recalls. Doesn't that tell you that machines aren't perfect? "A pushy F&I manager can make you feel that saying no to the extended warranty is like playing Russian roulette with your car. You never know when that costly repair "bullet" might strike. But data seems to indicate that most people don't really need extended warranties." With this statement, let's look at it from a logical perspective. If the data shows that most people don't really need extended warranties, then a few thoughts... First, look up in "auto repair" on Google in your area code and see how many places pop up. If repairs weren't needed, why would these places be in business? Second, the article doesn't address the fact that in reality, dealers don't make much on cars. What they do make money on is servicing and not just on oil changes. In fact, with dealerships, there is a concept called "service absorption" which is a calculation in which a dealership strives to get their service, parts, and body shop departments, to pay the majority of the costs of running a dealership. Notice that "sales" is not mentiond here. Sure, profits from cars sales help, but if a dealer had to rely on sales profits to keep opened, then he would be out of business in no time. In the end, much of the profit generated from the service department is from legitimate repairs. what those repairs consist of is unpredicatable because after all, who knows what can go wrong? The gist of my argument is this, with both of these areas, from a logical standpoint, nothing ever manufacturered is 100% fail safe. Because of defects, planned obselescense, or just mechnical issues that may come with a machine, even if a vehicle is 99% fail safe, that 1% is very difficult to determine what exactly is going to have issues. Could it be the air conditioning? Could it be the engine? Or maybe just something as small as the engine on the power windows? In any case, it's the customer that is stuck with the bill and not Edmunds or the dealership but, the reality is that the customer would have to pay someone to fix it.

  • ken117 ken117 Posts:

    At best an extended warranty, actually a service contract, is very expensive insurance against a limited number of possible future repair events. The cost of such a service contract is established by actuaries who understand the true risk of such an event and who price the service contract so as to provide a profit for the provider of the contract as well as the dealer. Such extended service contracts are designed to exclude most of the compenents expected to go bad. A service contract is rarely a good way for a person to spend their money. Before buying such a contract, people should take the time to understand just what they are buying. For example, a five year service contract for 60K miles is actually, in most cases, a two year contract for no more than 24K miles. So, if the cost is $2,000 the purchaser is actually betting the actual covered repairs during those two years will exceed $2,000. With today's improved vehicles is that is really likely? Smart buyers will take the $2,000 for the, or the increase in monthly payments necessary to cover the, service contract and put the money aside for any covered repair which might occur during the period to be covered by the service contract which extends beyond the manufacturer's warranty. By doing this the buyer has money available in the unlikely event a problem covered by the service contract happens. Of course, if no such event happens, the buyer then has the money which would have gone to the dealer and service contract provider. People should never accept any sales pitch from a dealer F&I person, such as that posted by mk1026. An F&I person has one goal which is to increase the dealer profit by selling a littany of overpriced products, including highly profitable service contracts, to the buyer. The F&I sales pitch has been developed by the most adept of sales people, is intended to play on the fears of the buyer, and has been designed to assure the buyer does not have sufficient time to really consider the true value of the F&I products. F&I people know once a buyer leaves the dealership they will not return to purchase an F&I product. In fact most F&I people strive to achieve $1,000 more of additional dealer profit through such sales. How many of us really would willingly choose to increase the dealer's profit by purchasing overpriced products if we were allowed time to consider those purchases?

  • davebehrens davebehrens Posts:

    I recently purchased a 2013 Toyota RAV4 LTD. It is heavily computerized. With an aftermarket cable, free software, and a 32 bit laptop, anyone can access this on-board computer to troubleshoot the vehicle. However, OEM electronic components, available only from Toyota, can be really expensive if they fail. For this reason I am considering purchasing, for the first time in my life, an extended warranty.

  • jbcok jbcok Posts:

    We just purchased a new Toyota Sienna this month. Although we have NEVER purchased a warranty in the past we did with this car. In 2008 we purchased new a Toyota Tundra, based on the reliability and reviews we didn't anticipate any problems. Before the car hit 90k miles we had replaced the power steering pump, water pump, front differential, front axel and rear wheel barring. The car was under 5 years old. We didn't tow much with it, do all maintenance, and drive it easy so we were dumbfounded by the problems we encountered. Of course everyone we spoke with said that our situation was unusual and we were just unlucky...with our recent purchase we ended up negotiating the rate down $150 from the "dealerships cost" because they said they sell them for $1 over cost (yeah right) and we also negotiated our interest rate down .5% along with it to make the warranty deal. We did our research on interest rates so I knew we were already getting a better rate than what I had found elsewhere. Overall between the two we ended up getting a 6 year 100,000 mi bumper to bumper warranty for about $1300 with a reputable company. Do I still wonder if it was worth it? Yes. But the peace of mind after our previous experience is worth it and I know it will cover the common issues the new car may have like the motor for the power sliding doors that tend to go out and cost well over $1000 to repair.

  • garrisos garrisos Posts:

    This is a great Article and thread. I own a 2012 Audi A6 w/ 47k with all the available options and I'm considering an extended warranty. The dealer quoted me $7800 and then after talking a bit she would not budge below $6035 which would get me to 107k miles, $250 detectable bumper to bumper... I about pooped myself. I'm struggling! Piece of mind, what could or could not happen, set aside $3500 just for "what if's"... what is the best decision? Looking at my past warranty repairs covered are $2800-LED headlight assembly and a vacuum thing under the supercharger-$1200. Thanks for your advice!

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