You’re at the car lot when the smooth-talking sales rep tosses out a question you didn’t expect: Would you like to add an extended warranty to your vehicle purchase?
And you freeze. You know you’ve read something about them ages ago but can’t recall the details. Are they a rip-off? Or a smart buy? You really wish you’d done a quick search beforehand.
It all boils down to one simple inquiry: Are extended warranties worth the cost?
Here’s the straightforward truth.
How Extended Warranties Actually Work
First, let’s define what an extended warranty is — and what it isn’t.
You might be surprised to find out it isn’t technically a warranty — a more accurate label is “service contract.”
While a manufacturer warranty comes with a new car and is built into the price, as the FTC explains, “a service contract can be arranged at any time and always costs extra.”
Factory warranties accompany new vehicles and commonly cover at least three years or 36,000 miles — whichever occurs first. Conversely, extended warranties (service contracts) typically take effect only after your manufacturer’s warranty has lapsed.
These extended plans differ in length and what they cover: some provide comprehensive bumper-to-bumper protection, while others only handle repairs to specified components.
But be cautious: “Routine repairs for items like brakes and clutches usually aren’t included,” the FTC warns.
Before you buy any extended warranty, make sure you ask:
- What is included? What is excluded?
- Who underwrites the contract?
- What is the deductible?
- Do I pay for repairs up front? If so, how long until I’m reimbursed?
You should also verify whether the extended plan’s coverage (either timeframe or types of failures) overlaps with your manufacturer’s warranty — because you don’t want to be paying twice for identical protection.
What an Extended Warranty Costs
While the price of extended warranties varies by vehicle, coverage level, and duration, a Consumer Reports survey found the median cost for a plan was $1,214.
On top of that, you’ll likely owe a deductible for repairs — either per visit or per repair.
The distinction matters, as the FTC points out: “Say you have a $100 deductible and your car needs three parts fixed. With a per-visit deductible, you pay $100. If the deductible is per repair, you pay $300.”
If you opt to buy an extended warranty, remember to haggle. Consumer Reports says those who negotiated saved an average of $325.
Another pricing factor is whether you obtain the contract from the dealership or a third-party provider.
I suggest sticking with the dealership — not just because the cost can be rolled into your monthly payment (with interest), but also because third-party providers areoften unreliable.
Whatever you do, ignore unsolicited letters or calls claiming your warranty has expired and offering to extend it. They’re frequently scams.
One woman who signed up for coverage after responding to a TV ad told Angie’s List: “Every time I called to file a claim, they turned me down. They always had some excuse. I finally stopped paying them.”
Should You Buy an Extended Warranty?
Based on the evidence, extended warranties often aren’t a good value.
Need numbers? Of those who bought an extended warranty, 55% never used it, according to the Consumer Reports survey. And among those who did make claims, the average benefit was only $837 — a net shortfall of $375, given the median purchase price of $1,214.
Consumer Reports also reports that “satisfaction with automobile extended warranties ranks among the lowest of all products and services” it surveys — with roughly only a quarter of buyers saying they’d definitely buy one again.
So what’s the smarter move? Park the cash you’d spend on an extended warranty into a savings account, suggests Consumer Reports.
“That way you’ll have an emergency fund if a post-warranty issue crops up. And if your car avoids major repairs, you’ll already have money for a down payment on your next vehicle.”
Or, if you want to adopt a thrifty approach, consider purchasing a used vehicle instead. You can also read more about whether specialty options are worth the extra cost in pieces like are fancy types of rice worth it to sharpen your money-saving mindset.
Your Turn: Have you ever bought an extended warranty? Did it pay off?
