Understanding Extended Warranties -- Edmunds Auto Warranty Tips

Understanding Extended Warranties

Finding Coverage That's Right For You


You've seen it happen time and again.

A new business launches with a prosperous bang and high expectations, only to collapse mere months later with a bankrupt whimper.

A marriage begins with intimate glances and fervent I love yous, but quickly devolves into icy glares and loud, angry talk of divorce.

Clearly, situations that start out swimmingly can sometimes end in an unfortunate, premature way. But that doesn't have to be the case when it comes to the relationship between you and your car; there's an auto warranty designed to help that situation live up to your expectations. It's called an extended warranty, and it can help make sure that your car doesn't degenerate from prized possession to cumbersome money pit.

In essence, an extended warranty is an insurance policy on your vehicle, a safeguard against expensive, unforeseen repairs. The term extended warranty is actually a misnomer, since, in the strictest sense of the word, these aren't warranties at all. Like auto warranties, they cover repairs and/or regular maintenance for an agreed-upon period of time. True warranties, though, are included in the price of the product; extended auto warranties are really service contracts, since they cost extra and are sold separately.

An extended warranty may be purchased at the time you buy your vehicle; it's also possible to purchase one much further along in your ownership experience. If you're the type who likes to be prepared for all eventualities, an extended auto warranty may be just what you're looking for. Bearing in mind the ever-increasing cost of vehicle repairs, these service contracts can make a lot of sense.

In deciding whether an extended warranty is right for you, and in selecting the best plan for your needs, you'll need to ask yourself the following questions:

  • To what extent is your vehicle already under warranty, and is this coverage in sync with how long you anticipate owning it? If the car you've just bought is new, take a close look at its factory warranty before making an extended warranty decision. If, for example, the vehicle has a factory warranty of three years or 36,000 miles, and you plan on keeping it for two or three years — with an anticipated annual mileage of about 10,000 — then an extended warranty makes little sense, since you'll likely be covered under the manufacturer's plan. However, if you plan on keeping the car long after the factory warranty expires, an extended auto warranty is worth considering. If the car you've just purchased is used, you'll need to ascertain if there is warranty coverage from the dealership (coverage periods may range from as little as a month to up to a year, or more). If you're buying a late-model used vehicle, it's possible that the vehicle's original factory warranty is still in effect (this will be dependent on how many miles the car has under its tires, and on how much time has passed since it was originally titled). Some manufacturers also offer "certified used" programs that extend original factory warranty terms on pre-owned vehicles. If the car isn't under warranty, or if you plan on keeping it past its warranty's expiration, an extended warranty makes sense.
  • What's the reliability record of the model you're purchasing? Take a look at the reliability history of the model you're buying. Though this is by no means a fail-safe way of predicting what your repair bill will look like, it does give you an idea of what you may be in for service-wise; bear this information in mind when making a warranty decision.
  • Who is behind the warranty that you're considering? An extended auto warranty may be backed by an independent warranty company (these are known as aftermarket or third party warranties) or by the covered vehicle's manufacturer. While aftermarket warranties are often cheaper, many of these companies are known for shady and dishonest business practices that could result in your not getting the coverage you've paid for when you need it. As such, we recommend sticking with manufacturer warranties, which have a much better track record when it comes to service.
  • What's the nature of its deductible? Fully investigate a policy's deductible before signing on the dotted line. Consider not only its amount, but also whether it's per visit or per repair. With a per visit deductible, each visit to the shop will run you a fixed amount, regardless of how many parts are repaired; a per repair deductible applies to each serviced part. What sounds like a minor difference may, under certain circumstances, have a major impact on your wallet. If, for example, you've got a $100 per repair deductible and you take your car in to get the air conditioner, fuel pump and alternator serviced, you'll be out $300; had you opted for a per visit deductible, those repairs would only have cost you $100. Charier still is a $0 deductible policy. You will have to pay extra for this, but if your circumstances become such that you have to take your car in frequently, you'll find that this policy more than pays for itself.
  • Is the warranty transferable? Some extended warranties end when the person who bought the warranty sells the car. A warranty that allows you to transfer it to a new buyer is preferable; it's an excellent selling point for prospective buyers.
  • Can repairs be performed at any repair shop? Some extended auto warranties stipulate that repairs must be performed at the dealership from which the warranty was purchased; this can prove limiting and inconvenient. It's best to opt for a warranty that, at the very least, gives you more than one service facility to choose from. You'll appreciate this should the vehicle ever need service while you're on a road trip, miles away from home.
  • What exactly is covered? Know what's covered — and what's not covered — by the extended warranty you're considering. Does the service contract cover breakdown as well as wear and tear? Under a "breakdown" warranty, coverage is extended only to parts that break. Such a policy can prove less inclusive than is desirable, since not all parts fail due to breakage. Some need to be replaced because they've worn down over a period of time; a "wear-and-tear" warranty extends coverage to worn-down parts in need of replacement. Additionally, some "entry level" contracts don't cover ABS brakes, so if your vehicle has this feature, you should consider upgrading to this level. And overheating — regardless of its cause — isn't covered in many warranties. Thus, if overheating occurred due to problems with an expensive part such as your radiator, you'd be stuck with a hefty repair bill. Before committing to a warranty, take the time to fully explore the ins and outs of its coverage implications. The distinctions between the various plans might seem slight, but they can prove quite important.
  • Is a cash layout required for repairs? Some extended warranties require that you pay the bill, then send the receipt in and wait for reimbursement; in many cases, months elapse before you get your money back. Ideally, you'll want a warranty that pays the dealership directly with a credit card.

Remember to compare all your options before making a warranty decision. Utilize the Internet; many companies sell directly online, and, at the very least, getting quotes from them can help give you a ballpark idea of what an extended warranty with your desired features should cost. In warranty buying, as in so many other aspects of life, it helps to be fully informed.

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



  • jeet1 jeet1 Posts:

    I have Honda Care for 120k miles / 8 years. Just this week I took the car to the dealership for the second time to ask them to fix the issue with the transmission. The manual transmission does not always shift into the the third gear smoothly. The first time when I took the car in the mechanical advisor was not able to reproduce the problem. The second time we were able to. However, the service center cam back and said that American Honda wants me to bear the cost of the tear down for the transmission which is north of $2,000. I am stumped. What do I do? My car is extremely well maintained and attended to by this dealership, but they refuse to do anything unless I approve this expense.

  • cpo3 cpo3 Posts:

    I also have the Honda Care 120k/8 year and it is the most useless extended car warranty I have ever owned, every time you take it to a Honda Dealer to get repaired they find some excuse to keep you from using it, Honda Care= Ripoff.

  • kelley2843 kelley2843 Posts:

    What about extended warranties due to recall on Ignition coils if they dont specify which coils then does that mean all coils should be replaced at time of recall extended warranty repair? I took my 2005 Lincoln LSE in to the dealership for the recall repair because it was misfiring, but they only replaced two of the 8 coils now here I am less than a year since repair and two more have gone out and I am no longer in extended warranty coverage are they responsible since they did not do it during first repair. It did not specify coils on certain valves it said recall on ignition coils in general as i took to mean all of them should have been replaced when the first two went bad

  • jtknotts jtknotts Posts:

    I bought a used 2005 ford freestyle in january 15, 2009, we then also bought the premium extended warrenty in which they told us was 72 months or 100000 miles. When the motor blew up in my car this july I called to check on the warrenty and they told us that it expired in march. We sent $1500. on this extended warrenty that lasted 2 years. I guess we are very confused on how it extended warrenty works. Can someone explain. Thanks Tina Knotts

  • Hi jtknotts, Looks like you had coverage up to 72 months or 100,000 miles; the way it works is, coverage expires whenever either of these milestones is reached. Do you have 100,000 miles on the odometer? If so, this would explain why coverage was denied, even though the full 72-month term hasn't ended. Warren

  • warhog warhog Posts:

    I just saw your issue. Probably too late to help. However, maybe someone else has a similar problem. You need to escalate your complaint. Ask to see the District Manager (I am a retired D.M.), if he won't help, ask to have a conference with the Zone Manager, then write a letter to the Service Division Vice President. Remember, the higher you go, the less they like "heat." If you have serviced your car regularly per the Honda recommendations, I would be very surprised if they did not cover the issue.

  • glam1 glam1 Posts:

    How can one calculate whether or not an extended warranty is priced too high?

  • sheen11 sheen11 Posts:

    I just wanted to know that is there any difference between a used car warranty and an extended car warranty?

  • guest27 guest27 Posts:

    My 2012 Toyota-Prius was 'total' on an accident. The Extended Warranty Service contract specifically says that I have right to a refund. The mileage at time of the accident was 14.766. I submitted the required paperwork to Toyota-dealer and after a month pass I send an email to the financial manager followed by multiple phone-calls. To this date no one has communicated with me. What to do???

  • mr_research mr_research Posts:

    I purchased a 2008 BMW 550I and I got an extended warranty that cost me over $2500. Since purchasing, I have had to get some repairs that cost around $1400. Even with the extended warranty, I still had to pay about $650. I think that was too much to have to pay but my mechanic said that it is a pretty good warranty compared to the ones he's seen. Well after a little bit of research, I found a low cost month to month warranty that covers any vehicle with less than 200,000 miles with only a $100 deductible. It covers pretty much everything....I wish I would have know about it before I dished out over $2500!!

  • onetrudru onetrudru Posts:

    @mr_research would be very interested in hearing who you go through for your month to month warranty coverage - struggling to pick someone and any assistance would be appreciated.

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