Should You Buy an Extended Car Warranty?

The 7 questions that will help you decide whether an extended warranty is right for you.
by Rich Ellis
Answering ‘yes’ or ‘no’ to the question of whether you need an extended warranty isn’t as easy as it should be. Add a few more layers like, ‘Which extended vehicle warranty is right for you?’ and the situation becomes even more complicated. And guess what? There’s no right or wrong answer here. Groan.
Luckily, the right questions can help you decide on which side of the fence you stand. First and foremost, it’s important to understand that this won’t be a cheap decision either way. An extended warranty can cost anywhere from several hundred dollars to upwards of a $1,000, but repairs can cost thousands when you are faced with the failure of a major vehicle component, such as an engine or transmission. 
So, how to choose? Let these questions help guide your decision. 

Is your new or used vehicle already covered by a manufacturer or dealer warranty?

If the answer is ‘yes’ and the extended warranty is going to duplicate coverage already provided by the original warranty, then adding an extended warranty probably doesn’t make sense. A better scenario is an extended warranty that kicks in once the original warranty’s terms and conditions expire.

Do you trade vehicles every few years or drive them with high mileage?

Today’s vehicles are more reliable than ever, lasting longer with fewer mechanical issues than their predecessors. If you change vehicles every two or three and rarely see the odometer reach 70,000 miles, an extended warranty might not be the best decision. The odds of a major mechanical failure occurring while the vehicle still has low mileage are just that – pretty low.

Who stands behind the warranty?

If the warranty is backed exclusively by the new or used car dealer, it might limit you to having warranty work performed only at the dealer, and it could leave you with little recourse should the dealer go out of business. On the other hand, an extended warranty backed by the vehicle manufacturer will give you more options, and peace of mind. Whether it’s through the dealer, the manufacturer, or a private company, there are numerous warranty providers available, each deserving careful consideration.


What does the warranty cover?

Read the fine print to determine what the warranty will or won’t cover. Are warranty claims limited to just the drivetrain components or is it a bumper-to-bumper warranty that covers everything? What about items that need to be replaced due to normal wear, such as brakes? Many warranties specifically exclude these items. 
Warranty longevity usually stipulates either a timeframe or vehicle mileage, whichever comes first. If a particular warranty won’t cover the amount of time or miles you plan on putting into this vehicle, maybe it isn’t the right one for you. 

What is the claims process?

Hopefully, you’ll never need to file a repair claim under your warranty, but just in case, it’s a good idea to familiarize yourself with your warranty’s specific claims process and requirements. Here are some of the most important things to consider, ideally before you have to file a claim. 
Many warranties require you to obtain prior approval before having the repair completed. Oftentimes the dealership or repair facility can obtain that approval while your vehicle is in for the repair, after they’ve diagnosed the problem and determined that it’s a covered claim. Warranties usually require a deductible to be paid as part of the claim. Find out if your deductible is per item repaired or per visit. If it’s the latter and you have several items that need to be repaired, you can save some money by having them all taken care of at once. Before you go that route, however, determine how they want you to pay for repairs. You will either need to pay up front and be reimbursed by the warranty company or they will pay the repair shop directly. 
Also determine if the warranty limits the number of claims you can file and/or cap the dollar amount of repairs. When it comes to choosing where to have the work performed, the warranty could specify where the repairs have to be made – leaving you unable to go to your trusted mechanic. Lastly, it’s also worth checking to see if your warranty provides you with a loaner vehicle while your vehicle is being worked on, and for how long. 

Can you afford the warranty? Can you afford not having the warranty?

This is a question of finances, both immediate and longer term. If you don’t have the money available to purchase the extended warranty with the vehicle, then consider setting up your own “vehicle repair fund." Set aside a specific amount of money each month and place it in this account to cover future vehicle repairs. On the other hand, if you know there is a no way you could afford a major vehicle repair, such as if the transmission fails, then you should seriously consider purchasing the extended warranty. Oftentimes vehicle dealers will roll the warranty purchase price into the overall vehicle sale price and financing so you can avoid having to pay for the warranty upfront in one lump sum.    

If you don't purchase the warranty, will you still be able to sleep at night?

No one knows you better than you, and this could be the determining factor, above all else, in deciding whether you need an extended warranty. Are you a worrier? Does even the remote possibility of having to pay for a major vehicle repair fill you with anxiety?  Or, are you comfortable “rolling the dice" by not paying for an extended warranty, gambling that the odds will be on your side going forward and you won’t need a vehicle repair?

Before purchasing a vehicle, most buyers spend some time researching which vehicle best suits their lifestyle and needs. The same effort should go into deciding whether an extended warranty, or which warranty, is right for you. The time to ask these questions and obtain answers isn’t when you’re sitting in the dealership. Do your homework and sleep better at night, knowing that when it comes to extended vehicle warranties, you made the decision that’s right for you. 

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