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The Truth About Extended Car Warranties

Finance | 10/12/2022 22:00

We expect certain things from a sales pitch with a car dealer. They will try to sell you on dealer financing, they will try to sell you some fancy add-ons, and they will definitely try to sell you an extended warranty. But just because it’s become a trope of the industry doesn’t mean that it’s necessarily a bad–or a good–thing. 

The truth is that extended car warranties can be worth it for some people, while for other people they might not be necessary. 

Let’s talk about extended car warranties and how you can decide if getting one is worth it.

What’s the difference between a factory warranty and an extended warranty?

All new cars come with factory warranties. Factory warranties are a guarantee by the manufacturer that your new car will last a certain period of time without requiring costly repairs. If anything should go wrong in that time period, the manufacturer will foot the bill. There are two types of warranties that a manufacturer may offer: powertrain and bumper to bumper.

Powertrain warranties cover your engine and transmission–essentially the most important parts of your car. Bumper to bumper warranties cover all of the other systems in your car, from your navigation system to the suspension system. The fine print will tell you exactly what is covered and what is excluded, as these details will vary from warranty to warranty and from manufacturer to manufacturer. They do not cover everything that can go wrong with your car, and typically exclude wear and tear and maintenance issues. 

It is common for manufacturers to offer a bumper to bumper warranty for the initial few years, and then a powertrain warranty for an additional few years. You may get a new car that has a bumper to bumper warranty for the first 3 years/36,000 miles, and then a powertrain warranty for the next two years/24,000 miles.

There also may be exceptions in your coverage for certain components. Under federal law, manufacturers are required to cover emissions repairs for 8 years or 80,000 miles, whichever comes first. This will cover your catalytic converter as well as other costly repairs.

Extended warranties work in two ways. They can provide additional protection to your existing manufacturer warranty, or they can provide coverage when your manufacturer warranty expires. If you have a powertrain warranty (and not a bumper to bumper) you can get an extended warranty that can cover the rest of your car. This can help cover:

  • Suspension

  • Navigation

  • Electronics

  • And more

Getting an extended warranty can also be a great idea when your initial warranty expires. After all, the older a car is, the more likely it is that something will go wrong.

How do extended warranties work?

There are two different types of extended warranties: OEMs and third party warranties. OEMs, or original equipment manufacturer warranties, extend the initial warranties. This is the type of extended warranty that a dealer will try to sell you when you purchase your car initially. 

Dealer warranties typically stipulate that you need to go to a dealership to have any work done on your car. This can be a hassle for many. Additionally, they may not allow the same level of coverage as your initial warranty had. 

A good alternative for manufacturer’s warranties are third party warranties.  These warranties can also be purchased to provide protection after your initial purchase. Third party warranties can be a great option as they allow customers to shop around and compare coverages and prices. They allow you to customize your coverage and will allow you to have more flexibility as to where you take your car for repairs. Many third party warranties will require you to pay for repairs out of pocket and reimburse you later however, which is important to keep in mind.

Is it worth paying for an extended warranty?

Extended warranties oftentime get a bad rep, but the truth is they can be worth it for many people. If any of the following apply to you, an extended warranty may be a good idea:

You like peace of mind. 

After your manufacturer's warranty expires, you might be missing the peace of mind you once had. Cars break down all the time, unfortunately, and it never happens at a convenient time for us. But if you have an extended warranty, you do not need to worry as much about the financial side of this inconvenience. Think of an extended warranty as insurance: you don’t always need it, but when you do need it, it’s nice to have.

You like getting extra perks.

Third party extended warranties often come with added advantages. This will vary from company to company but can include:

  • Rental car reimbursement

  • Free towing

  • Lockout services

  • Roadside assistance

These additional perks can alleviate the burden of a breakdown even more.

You can get the latest technology.

Have you ever gotten a new car only for the technology to become out of date all too quickly? It is frustrating to have technology in your car that is out of date and in need of software updates. These updates without a warranty can be very cost prohibitive, and may even sway you against getting the latest tech. But an extended warranty can cover this and give you the freedom to get what you want.

You want customized coverage.

Manufacturer’s warranties have a tendency of being very one size fits all. They are much more difficult to customize and cover what you want. After all, no one knows your car better than you do, so customizing your own coverage just makes good sense. A third party extended warranty will give you a lot more leeway to cover what you want (and therefore only pay for coverage that you want).

You don’t work on your car yourself.

If you like to work on your car and fix it yourself, then an extended warranty is probably not worth it. But if you don’t like to (or know how to) work on your car yourself, then an extended warranty can save you a lot of time, money, and hassle. Modern cars are much more complicated to work on than older cars. Cars that are twenty or thirty years old are much simpler and do not have the electronics and computers that make modern cars so much more complicated. So if you are not up for the hassle of working on your car yourself, consider getting an extended warranty to save yourself the headache–and get a qualified mechanic to help you out.

You don’t have a lot saved up for emergencies.

Many Americans do not have a lot of money in savings should something go wrong. All it takes is one huge bill to hurt our finances and leave us in a difficult position. But if you have an extended warranty, you only need to worry about the upfront warranty cost and the deductible. Better yet, if you refinance your car, you can add your extended warranty into your monthly payments.

How to get the best extended warranty.

If an extended warranty sounds like a good idea to you, here are our top tips for getting the best extended warranty possible.

Shop around.

There are a lot of companies that offer extended warranties, so it’s a good idea to shop around and compare products, cost, and customer service. When considering a warranty, customer service is incredibly important. If people frequently complain that they cannot get their claims processed or are given a lot of pushback, run the other way. You can typically find pretty transparent pricing for different companies, but make sure that when you are comparing prices that you are comparing comparable amounts of coverage.

Pick the plan that makes sense for you.

Each extended warranty company will have different tiers of coverage. The lowest end of protection will typically cover the powertrain while the highest level will cover the electronics, navigation, and entertainment systems. Think about how you drive, what you care about, and what you can live without should something break.

Do the math.

Look at how much you are paying for your warranty and how much the deductibles are. For example, let's say you purchase a warranty that is $1200 and charges a $300 deductible. You make five claims in the coverage period, and it ends up totalling $2700. If you instead opt for a higher upfront warranty cost of $1800 with a $100 deductible, those same five claims will net you a total of $2300. While you cannot exactly predict what you will need, see what makes the most sense for your car and your situation. 

That’s the truth about extended car warranties and how you can decide if getting one is right for you.

An extended warranty isn’t right for everyone, but it can be a great way to get some peace of mind. And if you refinance your car loan with Auto Approve it’s easy to add those payments into your monthly car payments. Contact Auto Approve today to find out how much money you can save with refinancing!


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