Motor1 Reviews Team Take:

  • Warranties from dealerships offer reliable coverage, perks, roadside assistance, and convenience – especially since you’re buying the warranty and car at the same time.
  • The drawback to buying a dealership warranty is that it will most likely end up costing you more than a plan bought from a third party.
  • Our team recommends looking at both dealership and third-party warranties to determine what will best fit your coverage and budget needs.

*Based on data from our users.

Dealership warranty programs provide a considerable amount of coverage and often offer perks similar to those from third-party providers. Be careful, however, not to overlook markups on your car loan, add-ons that you don’t need, and more.

Extended warranties from a dealership can be more expensive than ones from third-party companies.You may be wondering how much money dealerships make on warranties and whether a dealership extended car warranty is worth it. Find the answers to these questions and more below.

 


 

What Is A Dealership Warranty?

Dealership warranties are manufacturer-backed auto warranties that provide coverage for production defects on your vehicle. Like most vehicle protection plans, a dealership warranty doesn’t cover wear-and-tear damages. 

This type of coverage either comes with your new car or can be bought from nearly any authorized dealer under your automaker. Once your factory dealership warranty expires, an extended dealership warranty is useful for a variety of reasons. In our 2022 customer survey, these were the most common answers as to why customers purchased their extended warranty.

Stylized graph of reasons customers chose an extended warranty.

Types Of Dealership Warranties

Dealership warranties either come with your new car or are purchased as extended coverage. The main two types of warranties are powertrain and bumper-to-bumper.

Powertrain Warranties

A powertrain car warranty covers unexpected repairs associated with parts that keep your car moving – such as the engine, transmission, transfer case, drive axles, and more. Powertrain warranties are sometimes referred to as drivetrain warranties. They are often the cheapest forms of warranty coverage in the auto industry.

A powertrain warranty is just one component of a new car’s factory warranty coverage. Dealerships also sell optional extended powertrain warranty coverage for extra protection beyond your factory warranty.

Bumper-To-Bumper Warranties

Bumper-to-bumper warranties are also known as comprehensive or exclusionary warranties. While the most expensive, this type of warranty covers most vehicle parts save for a short list of exclusions – which makes it the highest coverage type you can have for your car.

New cars from automakers like Ford, Honda, and Toyota typically come with a bumper-to-bumper warranty lasting for three years, but longer warranty terms can be bought as extended coverage through a dealership.

What Is A Factory Warranty?

Factory warranties are also from the manufacturer, but are different from dealership extended warranties. A factory warranty is a guarantee from your car’s manufacturer that any breakdowns occurring from faulty workmanship or defective parts will be repaired for free. 

Factory warranty coverage includes both bumper-to-bumper and powertrain warranty protection. It also usually includes a corrosion or perforation warranty, emissions warranties, and various other coverages.

The main difference between a factory warranty and dealership extended warranty is that a factory warranty comes with your new car and an extended warranty is an optional purchase. Both are backed by your car’s manufacturer.

 


 

Extended Dealership Warranty: Pros And Cons

If you’re offered an extended warranty when purchasing your vehicle at the dealership, it can be difficult to know what type and length of coverage you need, as well as how much it should actually cost. 

Our team has put together a few of the pros and cons of buying an extended warranty from a dealership to help you make an informed decision.

Pros Of Dealership Warranties

There are some benefits to purchasing a dealership warranty: 

  • Reliable coverage: Buying a manufacturer-backed extended warranty from a dealership can give you access to high-quality service from licensed dealerships that use factory parts. You also get service from factory-trained technicians who are familiar with your car’s make and model.
  • Perks: Dealership warranties offer an array of perks like roadside assistance and rental car reimbursement. Manufacturers’ warranties also remove the hassle of paying for services upfront and needing reimbursement afterward. 
  • Convenience: Buying an extended warranty at the same time as your used or new vehicle eliminates the need to search later on. Any deals you’re offered during your car purchase may make warranty pricing seem more reasonable as well, and you may be offered a reduced down payment.

Cons Of Dealership Warranties

While dealership warranties can be a good deal, there are some potential disadvantages:

  • Higher interest rate: When you accept an extended warranty offer from a car dealer, your warranty payments may be combined with your regular monthly auto payment. This results in paying interest on your warranty along with your car, making your purchase more expensive.
  • Fees and unwanted add-ons: A dealership warranty can come with additional fees and unnecessary add-ons. While you may be able to negotiate with the salesperson, these fees and add-ons are usually set in place and can’t be altered as easily as with a third-party warranty plan.
  • Poor return: Dealership extended warranties may take effect almost immediately, which means that you may be paying for a warranty well before you need to use it. Depending on the length of the warranty, there’s a chance that it could expire before you’ll need any repairs done.

 


 

How Do Dealerships Make Money On Warranties?

Dealerships make significant money from aftermarket sales, which includes selling Guaranteed Asset Protection (GAP) insurance, car products and accessories, routine maintenance plans, and extended car warranties. Each warranty plan that a dealership sells can add up to $2,000 per purchase to its bottom line. For example, if you purchase an extended warranty for $2,000, the dealer may make a profit of up to $1,000.

Plus, when you purchase a dealership extended warranty, dealers make money for the duration of your vehicle service contract (VSC)* because you’ll likely bring your car to their service department whenever you need car repairs or replacements.

 


 

Why Do Dealerships Charge More For Warranties?

Because dealerships profit more from aftermarket sales than from new car sales, they hope to be your primary source for an extended car warranty. Dealers want to make the car buying experience as easy and efficient as possible, so they will try to sell you a warranty based on convenience and accessibility.

However, because extended warranty sales are so profitable, dealerships often mark up their prices. Because the cost of a dealership warranty is likely more expensive than a third-party warranty, it’s worth evaluating other options on the market.

 


 

Are Dealership Warranties Worth It?

It can be challenging to determine whether or not the benefits and coverage of an extended dealership warranty are worth its higher costs. Dealership warranties offer unique advantages in terms of convenience and high-quality service. But with dealership warranty timelines, you may run the risk of not actually benefiting from the provided coverage.

Many drivers find the price of a dealership warranty worth it, knowing their vehicle is covered in the case of a mechanical breakdown. Some also enjoy the trust that comes with establishing a relationship with their dealership’s service providers. 

To make your decision, consider the type of coverage you want, the average cost of repairs for the car you’re buying, and potential add-ons and fees. Research the average extended warranty cost, types of coverage, and perks offered by third-party providers as well. 

Even Jessica Campbell, Director of Marketing for leading third-party warranty provider Endurance, echoes these sentiments: “Ultimately, it is important to research and understand the details of any coverage plan and vehicle make or model before purchasing to ensure an extended warranty is a good financial decision.”

Dealership Vs. Third-Party Extended Warranties

While both extended dealership warranties and third-party warranties can protect you from paying for expensive repair costs in the event of a breakdown, there are some key differences between them. For one, dealership coverage must be purchased at a dealership and often at the time of a new or used vehicle purchase. Third-party warranties can typically be purchased at any time, even after your manufacturer’s original warranty expires.

In addition, third-party companies often offer more coverage options. Your dealership might only offer you two or three options for coverage, while a third-party warranty provider could offer you up to six. You also have more flexibility when it comes to repairs. Independent companies usually let you bring your car to any repair shop certified by the National Institute of Automotive Service Excellence (ASE®), while dealership-backed warranties are only honored at dealerships.

It’s good to note that dealership warranties will use manufacturer-backed parts and factory-trained technicians to repair your car. This isn’t always the case with third-party warranties. If you choose to purchase a plan from an independent warranty provider, be prepared for the chance that your car will be repaired using aftermarket parts.

 


 

Dealership Warranty: Bottom Line

Dealership warranties, while expensive, can provide comprehensive coverage. Repairs are completed by factory-trained auto technicians who use parts backed by your car’s manufacturer. A dealer warranty is also convenient to buy, since you purchase it at the same time as your car.

Whether this type of warranty is right for you depends on whether you find the benefits to be worth the extra cost. We recommend shopping around and comparing both dealer-backed and third-party plans to find the best deal.

*Based on data from our users.

Third-Party Extended Warranty Providers

To help you compare dealership warranties to third-party vehicle service contracts, our team reviewed and ranked the best extended car warranty companies. We’ve spent 1,475 total hours evaluating the top providers in the industry based on coverage plans, cost estimates, industry ratings, and customer reviews to help you make an informed decision on the best coverage for your needs.

Based on our findings from research, customer surveys, mystery shopping endeavors and more, we’ve highlighted three reputable providers below that scored highly in our review.

You can learn more about our methodology here.

CompanyMotor1 Rating*Coverage LevelsLongest Term Available
Endurance4.668 years
Olive4.433 years
CarShield4.4710 years (also offers month-to-month payment plans)

*Out of 5.0 points each.

Endurance: Best Coverage

Our team gave Endurance a 4.6-star rating out of 5.0 for its excellent customer service, positive reviews, reasonable costs, and quality coverage options. Another factor that makes Endurance stand out is that it’s a direct warranty provider, meaning it pays repair shops without a middleman, making the claims process simple.

All Endurance protection plans come with benefits such as 24/7 roadside assistance, rental car reimbursement, and more. Thanks to its six plan offerings, excellent benefits, and mechanical breakdown car insurance offerings for California residents, we awarded Endurance with the superlative of Best Coverage in our review. 

Read more: Endurance Warranty review

Olive: Best Value

This relatively new, digital-focused extended warranty company offers three coverage options that last up to 3 years/185,000 miles. Olive is subscription-based, meaning that you can cancel your extended warranty plan at any time. The company has an A+ score from the Better Business Bureau (BBB)*.

Olive offers warranty coverage ranging from its basic Powertrain plan to its exclusionary Complete Care plan. Each one also comes with three deductible options – $100, $250, and $500 – which gives customers the chance to choose between nine price points for coverage. Thanks to its low average rates for both monthly payments and annual costs, we’ve named Olive as our pick for Best Value.

Read more: Olive review

*The BBB is a trusted site that evaluates companies based on their business practices, customer satisfaction, and legal actions.

Best Value 4.4/5

There’s no waiting period for coverage with this extended warranty company.

CarShield: Best For Electric Vehicles

CarShield offers seven types of extended warranties for both new and used cars, with some plans providing coverage for up to 300,000 miles. The company has affordable monthly payments that start at around $100, making it a popular choice among buyers looking for a budget-friendly warranty plan.

A few advantages of an extended warranty with CarShield are the ability to choose the ASE-certified repair shop of your choice, 24/7 emergency roadside assistance that includes towing, and transferable vehicle service contracts. Our team gave the company a 4.4-star rating and the superlative of Best for Electric Vehicles thanks to its unique service contract exclusively for EVs.

Read more: CarShield review

 


 

Dealership Car Warranties: FAQ

Below are some frequently asked questions about dealership warranties:

 


 

Methodology

In an effort to provide accurate and unbiased information to consumers, our expert review team collects data from dozens of extended auto warranty companies to formulate rankings of the best providers. Companies receive a score in each of the following categories, as well as an overall weighted score out of 5.0 stars.

  • Industry Standing: Warranty providers with a history of strong business practices and endorsements from experts receive the highest scores in this category.
  • Coverage: This rating is based on types of extended warranty plans available, coverage terms, and added benefits like roadside assistance.
  • Cost: Our research team reviews sample quotes for a variety of plans and vehicles. Companies with lower prices per year of coverage receive the best scores.
  • Transparency: This score takes into account contract transparency and the availability of a money-back guarantee.
  • Customer Service: We comb through customer reviews and perform our own shopper analysis to get a sense of the responsiveness and helpfulness of each warranty company.

*Data accurate at time of publication.