The sales pitch for an extended warranty on a car purchase is often a compelling one. "You plan on keeping the car for a while," says the Finance and Insurance (F&I) manager. "Why not lock in the price of parts and service now, rather than pay more later?"

It's a compelling point, and it's one that you should consider before heading out to the dealership to finalize a car purchase. But it also raises a couple other questions: How do you get the best price on an extended warranty? And if you choose to buy an extended warranty, is it really necessary to buy it the day you buy the car? Here's an overview of what these warranties cover, and what you need to know when you're shopping for one.

Advantages of a Factory Warranty

Extended vehicle warranties fall into two classes: manufacturer or factory warranties and third-party warranties. Even though manufacturer warranties are generally more expensive, Edmunds recommends them over third-party warranties for several reasons:

  • Factory-trained technicians using manufacturer-authorized parts repair your car.
  • Repairs aren't delayed while the service department gets an authorization for repairs.
  • You don't have to lay out the money up front or file claims for reimbursement.
  • If you sell the vehicle, factory extended warranties are often transferrable to another owner.

To learn specifics about what the factory extended warranty covers, go to the manufacturer's extended warranty page, linked here:

Chrysler/ Dodge/Jeep/Ram
Mitsubishi: The Diamond Care Protection Plan (DCPP) has no official Web site. The warranties are sold through dealers and are administered by different companies based on the state in which you live.

For brands not listed above, see your dealer for details. Dealers may use third-party programs and offerings may vary.

Dealers are able to sell both factory and third-party warranties, and will sometimes promote whichever brings them the most profit. If the dealer says he doesn't offer the manufacturer's warranty, you might have to explore other options, such as inquiring at another dealership that sells the same brand. Most consumers buy plans through a dealership, but some carmakers also sell their extended warranties online.

Timing Your Purchase

Buying an extended warranty when you purchase your vehicle lets you fold the cost of the warranty into the vehicle's financing. Instead of laying out a lot of cash in one lump sum, you can finance and see just a small bump in your monthly car payment. A drawback of this is that you will pay interest over the course of the loan, so the warranty ends up being more expensive. Some dealers, however, offer zero-percent financing on extended warranties only. It's worth asking the F&I manager about that possibility.

You don't have to buy an extended warranty when you are in the finance office, buying your car. You can purchase an extended warranty any time before the standard factory warranty runs out. In fact, this gives you the extra time to shop for the best price.

Don't wait too long, though. If you do wait for the warranty to expire, the vehicle might not qualify for a factory extended warranty, or your coverage might be limited. You might be able to add the coverage even after the standard factory coverage expires, though this can be far more expensive.

An exception to this is a used car. If you are purchasing a used vehicle that is out of warranty, you usually will need to buy the extended warranty on the day you purchase the car.

As with car insurance, you can choose extended warranty plans with different deductibles and levels of coverage. Generally speaking, most extended warranties offer three coverage levels. The first level pertains to the powertrain, while the second adds coverage for more components. The highest-level warranty provides comprehensive (bumper-to-bumper) coverage, which includes costly-to-repair electrical systems. Deductibles can range from zero to about $100. Some third-party warranty companies have the car owner pay the repairs out of pocket and reimburse them later.

When you're comparing the levels of coverage, pay particular attention to what each one excludes. If you purchase the highest level of coverage, you won't be unpleasantly surprised by the news that a part needing replacement or repair isn't covered. But you will spend more for that peace of mind.

How To Negotiate an Extended Warranty

Extended warranties, like many products that a car dealer sells, are often marked up from the wholesale cost. This means that you have room for negotiation.

Begin by getting quotes from at least two sources. Call local dealerships, speak with the F&I manager and ask what they charge for the extended warranty that you're interested in buying. Dealers may offer different quotes, but once you have a few answers, you'll know roughly what the going rate is. At this point, you can either take the lowest offer, or venture into more advanced negotiations.

Oren Weintraub, owner of Authority Auto, a car concierge company, has found that the most effective negotiating method is to get a good estimate of the dealer's cost of the warranty and then offer to pay $100-$200 over that. The dealer will likely make a counteroffer. "A fair profit margin for dealers is between $200 and $500 over their cost," says Weintraub.

Here's another tip: When they're selling extended warranties with new cars, dealers often talk in terms of monthly payments, not the cost of the warranty itself. In order to really know what you're paying, ask for an itemized cost of everything involved in the vehicle purchase, including the specific cost of the extended warranty.