Are Extended Car Warranties Worth It?

An extended car warranty is usually a service contract, not a true warranty, and it is only worth buying if you read what it covers, who backs it, and how to cancel it.

A Service Contract Is Not a Warranty

A true warranty comes with the car. A manufacturer warranty is included in the price and is backed by the carmaker. A dealer warranty is listed on the Buyers Guide sticker on the window.

What most people call an extended warranty is a service contract. You pay extra for it, and it promises to pay for certain repairs for a set time or number of miles. It may be sold by the carmaker, the dealer, or an outside company.

That difference matters. A service contract has its own terms, and those terms decide what gets paid.

Who Backs the Contract

Ask who actually pays the claims. It might be the carmaker, a company that runs the contract, or an insurer that backs it. Some contracts are sold by one company and handled by another.

Look up the company that pays claims. See how long it has been around and what past customers say. A contract is only as good as the company that honors it.

Also ask where you can get repairs done. Some contracts let you use any licensed shop. Others limit you to certain shops.

What to Read in the Contract

Ask for the full contract, not a brochure, and read it before you sign. Look for these.

• What is covered. Some cover only the engine and transmission. Others list many more parts.
• What is excluded. Wear items like brakes and tires are usually not covered.
• The deductible. Check whether it is charged per visit or per repair.
• Maintenance rules. Many contracts require proof of regular service. Keep your records.
• Waiting periods. Some contracts do not cover anything for a period after you buy.
• Existing problems. Most do not pay for a problem the car already had.

That last point is a big one. If the car has a problem before you buy, the contract likely will not cover it. That is a strong reason to know the car's condition first.

How to Cancel

Many service contracts can be canceled, often with a partial refund based on how much time or mileage is left. There may be a cancellation fee. Read the cancellation terms before you buy, not after.

If the contract was rolled into your car loan, ask how a refund would be handled. It may go to the lender instead of to you.

How a Claim Usually Works

It helps to picture a claim before you buy. In a typical case, the car breaks down and you take it to a shop the contract allows. The shop finds the cause and calls the contract company before starting work. The company decides whether the repair is covered and how much it will pay.

A few things can slow that down or lead to a denial. The company may want proof of past maintenance. It may send its own inspector to look at the part. It may pay less than the shop charges for labor. It may say the failure was caused by something the contract does not cover.

Ask the seller how claims are paid. Some companies pay the shop directly. Others ask you to pay first and wait for a refund. Knowing this ahead of time saves a nasty surprise when you are already stuck without a car.

When One Might Be Worth It

A service contract can make sense if the car has a record of costly repairs, if you plan to keep it a long time, and if a big repair bill would be hard for you to cover. It makes less sense on a car with plenty of factory warranty left.

The price is often negotiable, especially when it is sold at the dealer. You also do not have to buy it the day you buy the car. Some can be bought later, though terms and prices may differ.

Never let a service contract be added to your loan without saying yes to it. Our guide on dealer financing vs a bank loan covers the finance office. Our guide on certified used cars explains how certified coverage compares. Past buyers often mention warranty trouble in public reviews, and you can see how they rated each lot in our dealer directory.

Know the Car Before You Cover It

Since most contracts do not cover problems the car already has, find those problems before you buy. Our used car inspection covers 122 points, a full OBD-II scan with readiness monitors, a road test, and tire and brake measurements, with photos of anything we find. You get the report the same day.

Common Questions

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