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Dealership warranty plans are typically automaker-backed add-ons that include various repair services at approved dealerships for a set period of time.
Dealership warranty programs provide a considerable amount of coverage and often offer perks similar to those from third-party providers. Be careful not to overlook markups on your car loan, add-ons that you don’t need, and insufficient coverage, though.
You may have also noticed that extended warranties from a dealership can be more expensive than ones from third-party companies. That could have left you wondering how much money dealerships make on warranties and whether a dealership extended car warranty is worth it. We’ll give you answers to those questions below.
At Motor1.com, we're dedicated to supplying car owners with the well-researched information they need to make sound decisions about auto warranties. Our editorial team consists of experienced automotive researchers, writers, and editors that follow strict guidelines to ensure that our articles are unbiased and fact checked.
To compile our product reviews and rankings, our team continuously evaluates dozens of warranty companies to compare plans, coverage, costs, customer service, and transparency. We verify each provider’s quality through our hands-on research process. More than 1,500 hours of research has gone into analyzing past customer reviews and mystery shopping top providers to gather pricing quotes for various plans. We’ve also surveyed 2,000 extended warranty customers to learn what matters most to consumers when purchasing a warranty. Lastly, to obtain first-hand product knowledge our team bought five warranty plans from separate providers to test the coverage levels and claims process of each company.
Dealership warranties are manufacturer-backed extended 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 extended coverage can be purchased from nearly any authorized dealer under your automaker. An extended warranty is useful for a variety of reasons, and in our 2022 customer survey, these were the most common answers as to why customers purchased their extended warranty.
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
Consider the pros of dealership warranties to determine if it’s the best option for you:
Reliable coverage: Buying a manufacturer-backed extended warranty from a dealership can give you more comprehensive coverage than one backed by a third party. You’ll gain access to high-quality service from licensed dealerships that employ factory-trained technicians and use factory parts. With dealership care, you get dealership quality including technicians who are very familiar with your make and model.
Benefits: Dealership warranties offer an array of benefits like roadside assistance and rental car reimbursement. Manufacturers’ warranties also remove the hassle of paying for services upfront and having to be reimbursed later.
Convenient for car buyers: Buying an extended warranty at the same time as when you purchase 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
Also take the time to look over some of the disadvantages of buying a dealership warranty:
Higher interest rate: When you accept an extended warranty offer from a 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 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 gap insurance, car products and accessories, 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 because you’ll likely bring your car to their own service department whenever you need car repairs or replacements.
Why Do Dealerships Charge More For Warranties?
Because dealerships make a significant portion of their profits from aftermarket sales rather 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, dealerships often mark up the prices of their extended warranties since the sales are highly profitable. 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 the additional benefits and reliable coverage of a dealership warranty are worth its higher costs. Dealership warranties offer unique advantages in terms of convenience and high-quality service, but you also run the risk of not actually benefiting from the extended warranty.
Many drivers find the peace of mind that comes with knowing their vehicles are covered in the case of a mechanical breakdown worth the price of a dealership warranty. It can also be a plus for many drivers to have a good connection with their dealership when it comes to breakdowns and maintenance.
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.
Dealership Warranty: Conclusion
Dealership warranties, while expensive, can provide more comprehensive coverage than other options. A dealer warranty also offers a convenient way to get your car serviced since it can be done at any automaker dealership.
Whether this type of warranty is right for you depends on if you find the benefits to be worth the extra cost. We recommend that you shop around and compare options to find the best deal for your own situation.
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 highlighted three reputable providers below to help you compare extended warranty plan choices.
Longest Term Available
Offers month-to-month payment plans
Endurance: Best Coverage
As one of the largest third-party extended warranty companies on the market, Endurance provides multiple coverage options for car owners and holds a gold-level certification from the Vehicle Protection Association. Our team gave Endurance a 4.6-star rating for its excellent customer service, positive reviews, reasonable costs, and quality coverage options. Another factor that makes Endurance stand out is that it is a direct warranty provider, meaning they pay 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 free Endurance Elite Benefits for a year. As a member, you’ll receive up to $1,000 toward a replacement vehicle in total loss protection. You also have the option to add additional services to your chosen warranty plan.
This relatively new, digital-focused extended warranty company offers three coverage options that last for 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) and a 4.7-star rating on Google.
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.
CarShield offers six 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 certified repair shop of your choice, 24/7 emergency roadside assistance, and transferable vehicle service contracts. Our team gave the company a 4.5-star rating, and we think CarShield’s comprehensive coverage and low rates are worth considering.
Below are some frequently asked questions about dealership warranties:
Your decision to buy a dealer extended car warranty should be based on the type of coverage you want and what you’re willing to pay. Many drivers find value in the peace of mind that a dealership warranty offers, but some find the lower cost and customizable options of a third-party warranty more appealing.
Several factors affect overall prices, but the average extended car warranty cost is about $2,800. There are many affordable third-party providers such as Olive, CarShield, and Endurance that we recommend when searching for the best value.
Dealerships lean on selling extended warranties because of how profitable they are. Customers who buy a dealership extended warranty with a low deductible will be more willing to bring their car to the service department for repairs, which increases the profit a dealer will make for the life of the car.
Yes, you can take your car to any dealership connected to your automaker for warranty services. You can also take your vehicle to an independent auto shop or a different car brand’s dealership, but repairs likely won’t be covered.
In most cases, you have the right to cancel a dealership extended warranty at any time and must receive a prorated refund for unused portions of your contract. However, cancellation terms may differ so we recommend reading the cancellation policy in your warranty agreement.
If a dealer refuses to cancel your extended warranty, check your contract’s cancellation policy to clarify your rights. Once you know your rights, you should speak to the financial department of the dealership or a general manager. We recommend requesting a paper cancellation form, delivering it in person, and getting a copy for your records.