When you buy a new car, it usually comes with a factory warranty that protects your car for the first few years. But when the factory warranty expires, you are left to foot the bill on any repairs that your vehicle might need. This is why dealers will try to talk you into purchasing an extended warranty on your vehicle. But how exactly does an extended warranty work, and is it worth it?
Let’s look at how extended warranties work and what you should consider if you are thinking about purchasing one.
What is a factory warranty on a vehicle?
A factory warranty is basic coverage that is offered by the manufacturer that will repair certain issues at no cost. What the warranty covers specifically will vary greatly depending on the manufacturer. Warranties have gotten much better in the past decade or so, and standard warranties usually cover powertrain issues and many bumper-to-bumper repairs.
The powertrain warranty covers your engine and transmission if there are any defects that cause your engine to operate improperly.
The bumper-to-bumper warranty covers most everything else on your vehicle, including air conditioning, on board computers, and navigation systems.
The length of the standard warranty depends greatly on which manufacturer you buy from. The standard timeframe is 3 years or 36,000 miles, whichever comes first. Certain luxury brands however have longer warranties. General Motors offers five year/100,000 mile powertrain warranties, while Hyundai offers ten year/100,000 mile powertrain warranties.
It is important to read your warranties very carefully to know exactly what is covered and what is not. Under federal law, manufacturers are required to cover emissions repairs up to eight years/80,000 miles. This covers catalytic converters as well as other emissions system parts. You should absolutely read the fine print of your factory warranty in your consideration of whether or not you need additional protection.
What is an extended warranty on a vehicle?
How exactly is an extended warranty different from a standard factory warranty? There are two types of extended warranties, those offered by manufacturers (also called OEMs, original equipment manufacturers), and those offered by third party vendors.
OEM warranties will extend your coverage and work the same way that your standard factory warranty works. Depending on the manufacturer, they will either cover similar issues as your original warranty, or they might cover significantly less.
Third party warranties are similar to OEM warranties, but with a few key differences. One of the major differences is how your repair bills get paid. For a factory repair, you will need to go to either a dealership or a dealer certified mechanic, and they will handle billing. For a third party warranty, you may need to pay for the repairs out of pocket, then get reimbursed later. A good extended auto warranty will pay the mechanic directly. The upside of third party warranties is that you do not need to use certified parts, which are usually much more expensive than the generic parts.
How much do extended car warranties cost?
The cost of an extended warranty varies widely based on coverage options you select as well as the make and model of your vehicle. A factory extended warranty can easily cost between $1000 and $3000 up front, and if that coverage is rolled into your auto loan, you will pay interest on that cost.
What are the advantages of an extended auto warranty?
So, is an extended warranty worth it? Here are the pros and cons of purchasing an extended warranty.
Pro: You can drive your car for longer worry free.
If you are planning on driving your car for longer than the factory warranty covers, it might be worth it to consider. Expensive repairs can hit unexpectedly, and an extended warranty will alleviate this. An extended warranty is like insurance. You don’t always need it, but when you do need it, it is extremely helpful.
Pro: It can help you keep up-to-date with technology.
In-car technology is amazing nowadays. But with all of the advanced features out there, it is very easy for technology to become obsolete or stop working properly. One Apple upgrade on your phone and suddenly your GoogleMaps doesn't connect properly. A new Android hits the market and suddenly the bluetooth doesn't sync quite right. Having an extended warranty will often cover software upgrades at no cost so that you can use the technology for longer.
Pro: You can customize it to your needs.
Extended warranties, especially third party vendor warranties, can be customized to fit what you would like covered. This can be helpful to reduce your monthly payments but still get coverage for common issues with your car. It is helpful to use sites like JD Power and Associates and Kelley Blue Book to see what some common repairs are on your particular vehicle, and try to get a warranty to cover those issues.
Pro: You might get some added benefits.
If you purchase an extended warranty through a third party vendor, you might get some additional perks such as roadside assistance, rental car benefits, and complimentary towing. This depends largely on who your provider is, but these extra perks might tip the scale for you if you are on the fence about getting an extended warranty.
What are the disadvantages of an extended warranty?
Con: Paying for a repair might cost less overall.
It is impossible to say whether or not an extended warranty will cost less than simply getting the repairs. On average, extended warranties cost about $750 a year. If you get a three year extended warranty and nothing ever goes wrong with your car, you are out $2250 with nothing to show for it.
When deciding on an extended warranty, you should consider how much you end up at the repair shop. If you are there often and there seems to always be something going wrong with your car, it might be worth it. Also consider your vehicle in general: do you have a car that’s known to be unreliable, and you’ve just been lucky up until now? These are all important things to consider. Again, look up common issues and possible repairs your car may need and consider how long you intend to drive your current vehicle. One pricey repair, again, could tip the balance – and the nice thing about an extended auto warranty is that you can plan for the cost of the warranty, so you don't have to worry about big surprises. Again, it's like insurance – if you just pay for it all year, it can feel like a waste, but if you end up needing it, you may be grateful you got it.
Con: They don’t cover everything.
Even if you customize your extended warranty to fit your needs, there are many things that are not covered by warranties. Many wear and tear items, including brakes, brake pads, and headlights aren’t covered by all warranties. It's important to find out what each warranty provider you're considering covers and compare and contrast plans.
Con: They require proof of maintenance
Many warranties require proof of regular maintenance as well. If you regularly miss oil changes and tire rotations, there's a chance they will not cover certain repairs. If they believe it is something that regular maintenance could have prevented, they might give you a hard time about covering it.
Additionally, if it is a factory extended warranty, you will need to go to a dealership or dealer certified mechanic to do any repairs. This can be a strain if you live far from a dealer.
Con: There may be either overlap in your protection or a gap in your protection.
If the extended warranty’s coverage overlaps with your regular factory warranty, you will end up paying for a useless warranty for the overlap period, as the coverage is redundant. That's why not everyone opts for an extended auto warranty with a new car. However, if there's something in particular your regular warranty doesn't cover that you'd like covered, it may be worth shopping around for extended protection. Some extended warranty companies are more flexible than others.
All that said, if you wait for your factory warranty to expire before purchasing an extended warranty, you will probably have to wait for coverage to kick in. Extended warranties do not cover pre-existing conditions, so they often have a waiting period. Typically you must wait 30 days or 1,000 miles before the warranty takes effect. So it's a double edged sword – you may want to try to start the extended warranty coverage as close to the time your manufacturer warranty ends.
Con: You might have to pay a deductible.
Certain extended warranty plans will charge you a deductible for each repair. Depending how your contract is worded, it is possible that you will have to pay a deductible for each time your vehicle is brought into the shop. This means that you could end up paying multiple deductibles for one repair. So read contracts closely and ask any agent you're working with about the details of the coverage you're being offered.
Can you buy an extended warranty later?
Yes, you can buy an extended warranty after you buy your new car. But if you purchase the extended warranty when you initially buy your new car, you can build the extended warranty into your loan payment. If you are not planning on financing it, you should definitely think about it and do some shopping around before agreeing to a dealership extended warranty.
Should I get an extended warranty?
There is no right answer for this question. If you are nervous about not having coverage and can afford the payments, it’s certainly worth looking into.
Just make sure you do research on your particular vehicle to make an informed decision.
That’s how extended warranties work on new cars.
We hope this will help you make an informed decision about purchasing an extended warranty for your new car. And if you have a new car that you love but loan payments that you hate, Auto Approve can help! We'll work with you to find your best option to refinance your auto loan to a lower APR and put more of your hard earned cash back in your pocket.