Pros and cons of extended auto warranties

Pros of an extended auto warranty

An extended car warranty, also known as a vehicle service contract, isn't a one-size-fits-all answer to every vehicle issue, but it can come in handy in the event of a surprise breakdown. There are two types of extended car warranties: manufacturer’s and third-party warranties.

As one reviewer from Arizona on our site learned, it’s crucial to read the fine print so you understand your coverage limits and deductibles, how to make a claim and where you can go for service. Otherwise, it might not be worth it.

The benefits of an extended warranty include the following:

• Financial protection if your car breaks down: Extended auto warranties cover specific types of mechanical failure. If your car breaks down, you can visit any repair shop allowed under the terms of the contract and alert the mechanic to your plan. All you owe is the deductible amount.
• Customizable coverage: Depending on the auto warranty provider, you may be able to choose the specifics of your coverage, including your deductible. This can help you find a policy that fits comfortably within your budget and covers what you need.
• Peace of mind: Buying a new car can be expensive and stressful. If you've kept up with routine maintenance on your current car, it may be smart to hang on to it as long as you can. An extended warranty can remove some fear of the unknown if one of your vehicle's major systems or parts breaks down.

Cons of an extended auto warranty

Extended auto warranties aren't right for everyone. In some cases, it makes financial sense to save the funds you would have spent on an extended warranty and put them in a savings account exclusively for future repairs. Before you buy an extended auto warranty, consider these cons:

• Can be expensive: The average cost of an extended auto warranty is $2,500 (plans typically range from $1,000 to $4,500) total or $350 to $1,000 per year. Your rates depend on the level of coverage you select, your deductible and your vehicle's age and mileage. In 2021, drivers needing car repairs spent an average of $349 to $418, depending on the state, according to CarMD.com — meaning an extended warranty may not actually save you money.
• May not cover everything you need: OEM (original equipment manufacturer) extended warranties may provide powertrain or bumper-to-bumper coverage. In either case, the warranty covers defects in the car's parts and systems; there's no coverage for routine maintenance or failure due to a lack of maintenance. If you skip oil changes and your engine overheats or is damaged due to a blown gasket, you may be denied coverage.

  Third-party warranties could have even more coverage restrictions. Some warranty providers automatically deny claims if you can't prove the car has been serviced according to the manufacturer's recommendations, and others restrict coverage to a list of named parts and systems.

• May not be transferable: While some extended auto warranties are transferable, many are not. If you plan to sell your car before you reach the age or mileage restrictions on the warranty, make sure you can transfer the coverage and you know the refund policy.

» MORE: How much does an extended car warranty cost?

Weighing the pros and cons of an extended auto warranty

Even with an extended warranty, you may need a separate budget for auto maintenance. The deductible may be high enough to cover the costs of most repairs, making the warranty less useful in the long run.

While it could make sense to buy an extended warranty to preserve your savings, avoid financial strain and keep your car in good working order, paying for additional auto coverage isn't the right move for everyone.

Do I need an extended auto warranty?

For some drivers, an affordable extended warranty from a reputable provider is worth the cost. For others, this type of warranty means dealing with cumbersome claims processes, frequent claim denials and restrictive coverage.

An extended warranty doesn't make sense if your car is still covered by the original manufacturer's warranty.

You may benefit from an extended warranty if you take time to carefully evaluate the provider and the warranty plan details. If you drive an older car and want to ensure you don’t have to spend thousands of dollars to keep it running smoothly, you might consider a high-quality extended warranty.

If you’re shopping for a used car and plan to keep up with routine maintenance but aren't sure how you’ll pay for potential repairs, an extended warranty could provide the coverage you need at a fair price.

An extended warranty doesn't make sense if your car is still covered by the original manufacturer's warranty. Even though many dealerships try to sell extended warranties on cars that are already covered, you can't use the extended warranty until the original warranty is no longer in effect anyway.  If your manufacturer only offers a powertrain warranty, however, a third-party wrap warranty can help cover other components that may break down.

Car warranty scams are also a widespread issue today, so make sure you thoroughly vet a company before signing a contract.

» MORE: How to avoid the worst extended auto warranty companies

Bottom line

If you have a used car that you want to drive for the foreseeable future and fear high auto repair costs, it could be wise to look into an extended warranty. This doesn't mean extending your coverage is a good use of your money, however. The decision ultimately depends on whether you want to pay for a contract that you may not end up using — or that may end up paying out less than you pay for the plan.

It's also important to carefully evaluate warranty providers. Not all companies have the same level of service, so be sure to read reviews for comments about claims handling. Study the fine print in any contract before you sign so you know exactly what you’re getting in the warranty.