Extended Car Warranty

Key Takeaways

• An “extended car warranty” isn’t an actual warranty; instead it’s a vehicle service contract that functions more like insurance policy that protects customers against expensive repair costs.
• Extended car warranties can be worth it for those who cannot afford expensive repairs at this moment and are unsure about their vehicles’ reliability.
• In our survey of 1,000 extended warranty customers, over 85% of respondents believe there are situations when purchasing an extended car warranties is a good idea.
• The average cost of an extended car warranty is $3025, which is $1039 more than the average 5-year expenditure on vehicle maintenance costs.

Are extended car warranties worth it? With the high costs of repairs, this is a topic worth considering. The problem is, the answer to this question isn’t always clear-cut. Whether or not buying an extended warranty is worth it depends on your circumstances.

In this complete guide to extended car warranties, we break down the ins and outs of vehicle service contracts so you can determine whether or not they are a good investment that’s worth purchasing. To do so, we’ve rounded up all of the important things to know about extended car warranties, including what they cover, how they work, and how much they cost.

A vehicle service contract, which is commonly referred to as an extended car warranty, is an optional form of protection you can purchase to help cover the cost of repairs. While extended car warranties often begin after the manufacturer warranty expires, they can also overlap with the factory protection.

An important disclaimer to note is that an extended auto warranty is not the same thing as a manufacturer’s warranty, or even a warranty at all. In this regard, the name is somewhat misleading. While true car warranties are included in the prices of the product, extended car warranties must come in the form of a service contract because coverage is sold separately from the vehicle.

*In order to avoid confusion, since “extended warranty” is how the term is most commonly used, we’ll use that word to refer to it.

An extended warranty is actually similar to an insurance policy that protects against costly, unexpected repair expenses. Extended warranties cover repairs for a specific period of time and miles, as stated in the contract. In exchange for the coverage specified in the contract, you generally make a small monthly payment toward your contract.

Extended Warranty Claims

If your vehicle experiences a problem that is covered in your contract, you can take it to a repair facility or a dealership to have it inspected and file a claim with the warranty company, which will reimburse you or pay the mechanic directly for your covered repair expenses, minus deductible costs. Depending on your contract, you may have to use a dealership, or you might be able to use your favorite repair facility.

Extended Warranty Providers

There are two types of providers that offer and administer extended car warranties: automakers (often referred to a manufacturer or original equipment manufacturer) and third party companies. While we discuss the difference in more detail in later sections, here is a brief description of each provider type:

• Manufacturer (OEM): An original equipment manufacturer (or OEM) is an automaker (for example Chevrolet, Mercedes, Toyota etc.) Manufacturer-backed warranties are typically sold by dealerships, which package extended warranty coverage with the sale of a vehicle. Though there generally more limitations regarding vehicle eligibility, covered repairs for manufacturer warranties are usually done at dealerships by factory-trained technicians, who use factory certified parts.
• Third-Party Providers Third-party extended warranty providers are independent companies that administer extended warranties. Third-party warranty providers could include insurance companies, banks, lenders, or companies that specialize in vehicle service contracts. Warranties from third-party providers generally are more flexible with regards to vehicle and repair shop eligibility, coverage limitations, and payments.

What an extended car warranty covers depends on your specific contract. Generally, covered parts can include the powertrain (engine, transmission, drive axles) alternator, electrical systems, air conditioning, safety components, water pump, and more. Read your contract’s fine print to figure out exactly what’s covered and what’s not.

Vehicle Service Contracts

There are two types of vehicle service contracts: exclusionary and inclusionary. Each type of contract provides a different form of coverage, which we describe in more detail below:

• Exclusionary contracts: This type of extended warranty covers all parts of your vehicle from mechanical breakdown due to normal driving activities, except for a short list of excluded parts and components.
• Inclusionary contracts: Inclusionary (also stated component, named component, listed component) coverage, is essentially the opposite of exclusionary coverage. Your contract will have a list of the parts and systems that are covered, and any unlisted parts are not covered.

Types of Extended Car Warranties

There are several types of car warranties, including bumper-to-bumper, stated component, powertrain, drivetrain, corrosion, emissions control, wrap, and accessory warranties. Several of these warranty types are included with new vehicle purchases, last during the first few years of ownership, and have extended forms of coverage available by the manufacturer.

Extended Car Warranty Plans

Below are descriptions of each of the types of warranty plans mentioned above:

*While drivers can purchase each of these coverage types in the form of an extended warranty, powertrain, state component, and bumper to bumper plans are the three main (most common) types of extended warranties.

Extended Warranty Exclusions

Extended warranties don’t cover everything. Usually, extended car warranties only cover repairs and components that break down as the result of normal use. Certain items are not covered under any circumstance, meaning if you are covered by an extended warranty and file a claim for a repair that is on the list of exclusions, your claim can be denied. Below is a list of common exclusions:

• Environmental damages
• Wear-and-tear components (tires, brake pads, wiper blades, and shock absorbers)
• Issues caused by theft or vandalism
• Improper maintenance
• Vehicle misuse or abuse
• Damage from accidents
• Routine maintenance needs such as oil changes
• Non-mechanical parts (bumpers, glass, trim, and upholstery)

Extended Warranty Period

An extended warranty coverage period is the length of time from the first day to the last day of coverage, as specified in the contract.

How Long Does An Extended Warranty Last?

Generally, the coverage period for an extended warranty ranges anywhere between 2 to 7 years and cover vehicles with over 100,000 to 150,000 miles. Some of the highest-rated extended warranty companies have even longer coverage periods that last up to 10 years and cover vehicles with over 250,000 miles.

When Does An Extended Warranty Start?

An extended warranty starts at the conclusion of a specified waiting period, which most providers require you to go through after purchasing your contract. This helps protect the warranty provider from someone purchasing a car warranty right after discovering an issue with their car.

Extended Warranty Waiting Period

Most extended warranties require you to wait 30 days and 1,000 miles before you can make a claim for car repairs. In some cases, a provider can require an inspection to take place during the waiting period to ensure that your vehicle doesn’t have any pre-existing conditions.

If you view this question literally, the answer is no. To legally drive, you do not technically need an extended warranty in the same way need the minimum amount of car insurance required in your state. That said, some drivers could benefit more from an extended car warranty than others.

In general, an extended car warranty can be worth considering for some drivers, but is a waste of money for others. In order to determine whether or not an extended car warranty is right for you, it is important to thoroughly understand and weigh out the following factors:

1. Extended car warranty costs
2. Estimated repair costs for your vehicle
3. The pros and cons of extended car warranties
4. The most beneficial aspects of extended car warranties for consumers
5. Specific circumstances that make purchase an extended warranty a good or bad idea

To help decide if a car warranty is right for you, we’ll dive into each of these factors in detail in the sections below.

With costs that range from $2,000 and $5,000, the average total cost of an extended car warranty is $3,025, according to our research. Customers can expect to pay $300 of that $3,025 dollars upfront in the from of a down-payment.

Extended Car Warranty Monthly Payments

While extended warranties can be paid for completely upfront, most people choose monthly payments that average around $100 per month and last for around two years. If you include your extended warranty with the purchase of a financed vehicle, your extended car warranty payment will be included in the cost of your monthly car payment (with interest included).

Extended Car Warranty Deductible

When you experienced a covered breakdown, plans require you to pay a small deductible, and the extended warranty covers the rest of the repair cost. Deductible amounts range from $0 to $200. Customers can expect to pay an average of $100 for an extended warranty deductible.

*Most factory extended warranties do not have deductibles.

Extended Car Warranty Pricing

While the prices above should serve as an indicator that gives you a better idea of extended car warranty costs, the specific price you pay for coverage depends on several factors that warranty companies use to determine costs:

• Type of vehicle: Some cars may need few repairs, but extended auto warranty companies also end up paying repair bills for some troubled vehicles. For this reason, make and model of your vehicle is an important factor when determining coverage, as some make/models are more reliable and/or cost more to repair than others. For this reason, driving a luxury model or sports car might raise the rate because the parts are more expensive.
• Vehicle condition: The year and mileage of your vehicle are important. For many manufacturer’s warranties, an inspection to check for pre-existing conditions must also take place before coverage begins.
• Type of coverage: Bumper-to-bumper coverage is going to cost more than simple powertrain coverage. In addition, the longer the coverage term, the higher your bill will be.
• Coverage length: Longer coverage is usually more expensive
• Deductible: Much like auto insurance, choosing a lower deductible will increase your overall premium.
• Provider: The provider you choose will have an impact on how much you pay for an extended car warranty, as no two providers have the same pricing criteria.

With the average American spending $1,986 on vehicle repairs and maintenance, according to Fool.com, over the course of five years, you should ask yourself if you are prepared to cover small repairs and the occasional larger, more expensive repairs that may come your way?

For an extended warranty to save you money, you need to be paying less for coverage than you would spend on auto repairs. While all vehicles are different, we can get a sense of repair costs by looking at industry averages. According to Liberty Mutual, here are a few repairs that cost between $500 and $1,000 on average.

While many vehicle owners would be able to handle a bill of this size, there are some repairs that cost more. Repair with higher price tags, like the ones illustrated in the table below, are more likely to put many drivers in a bind.

While there’s no guarantee you will need a repair that costs as much as the ones above, the chances are high, as most drivers end up paying for major repairs at some point or another. Unless you have a large emergency savings fund, bills at this price can be damaging to your savings, credit, and sense of well-being.

Most providers charge a monthly payment with a price that is two-times the amount you will likely pay for repairs, a number which is based on the factors above. Therefore, if we look at extended car warranties purely from a financial lens, on average, they are worth half as much as the costs or repairs they are supposed to cover.

We can see this pricing play out when you compare the average cost of an extended warranty to the 5-year average repair costs, as highlighted in the sections above. At $3,025, the average cost of an extended warranty is more than double the average amount US drivers spend on auto repairs over a 5-year period. If you adjust for the fact that most extended car warranties provide coverage for a shorter time period than this, the math works out almost perfectly.

But how can this be?

When the costs of extended warranties and repairs from above are taken into account, it’s obvious that purchasing an extended car warranty does not make sense from a pure financial point of view, as the cost of the warranty will almost always be higher than what you pay for maintenance. Instead of purchasing an extended car warranty, the more economically-sound option would be to purchase and properly maintain a vehicle model with high reliability ratings.

Why Extended Warranties Are A Waste of Money

Based on this information, it’s clear extended car warranties are a loosing proposition. Along with the fact that they cost an average of two-times more than the dollar amount of coverage benefits they provide, the most common mechanical issues may not even be covered because extended warranties usually contain many coverage exclusions.

Are Extended Warranties A Scam?

Though it may seem like a good idea in principle, we’ve shown that extended car warranties are expensive relative to repair costs and don’t cover every possible issue. Along with costing more money than they are worth, over half of the customers that purchase vehicle service contracts never use their coverage.

Such customers pay for warranty coverage on a monthly basis and get nothing in return. Yet, while extended car warranties may not add up when you look at them form a pure financial perspective, there must be some good reason why some many customers purchase them.

In addition to functioning similar to insurance with regards the coverage they provide, extended car warranties and insurance are also similar from an economic standpoint. Much like customers that purchase an extended warranty, insurance customers also pay more in insurance premiums, on average,  than they receive in claims.

If this weren’t the case, like warranty companies, insurance providers wouldn’t be able to make a profit. That said, nobody thinks that car insurance is a scam. Even though extended car warranties work like car insurance, why do many people have the perception that they are more of a rip-off?

Extended Warranty Customer Satisfaction

To more directly address the question of whether or not extended car warranties are worth it, the best place to start is asking customers themselves.

Our team of experts polled 1,000 consumers who’ve purchased or considered purchasing extended car warranties. When asked whether customers thought an extended car warranty is worth it, 40.5% of consumers said yes and 44.6% said it depends. Only 14.9% of consumers believe that an extended warranty isn’t worth it under any circumstance.

Therefore, somewhat less than half of respondents believe extended car warranties are worth it in general and nearly 85% of customers believe there are at least some circumstances when extended car warranties are worth it.

Based on these results, it’s fair to ask: if extended warranties weren’t worth it to some, then why does such a strong majority of customers find them valuable? And this positive sentiment regarding extended car warranties among our respondents can be extrapolated to the larger market, where extended car warranties are extremely popular.

Extended car warranties have a large market globally, as they generated over $120 billion in sales in 2019 alone. On top of that, the industry for vehicle protection plans is expected to reach over $169 billion within the next seven years, marking a significant 7.4 percent increase.

The Truth About Extended Car Warranties

The reason that extended car warranties may not make sense financially, yet are perceived as valuable by customers lies in the fact that there are many misconceptions about them, similar to the false conflation of vehicle service contracts and auto warranties that we touched on earlier.

To help consumers better understand what an extended car warranty is and is not, the table below addresses common misconceptions about extended car warranties:

Having come full circle, we’ve found that, on one hand, extended car warranties are over-priced. On the other hand, they are perceived as valuable to customers that purchase them by an overwhelming margin.

To that end, it’s clear that the question of whether or not an extended car warranty is worth it is a complicated one that cannot be explained using solely the rational predictions of economics.

Pros And Cons Of Extended Car Warranties

To weigh out both sides of the issue, we look at the pros and cons of extended car warranties below:

Why Buy An Extended Car Warranty?

Here are some of the advantages that come with buying an extended car warranty online:

• Spread0-out, predictable costs: Instead of paying large, unexpected repair bills, drivers who purchase extended car warranties can spread out costs with longer-term protection that will cover repairs for an agreed-upon amount of time and/or number of miles. This effectively replaces large unexpected expenses with small predictable ones.
• Customizable coverage and prices: Vehicle service contracts have a wide variety of coverage levels and price points that can be better tailored to your needs.
• Attractive to future car buyers: Most service plans are transferable. This can make your vehicle more appealing to prospective buyers is you decide to sell your car in the future.
• Gives you peace of mind: Extended warranties can give you peace of mind about your vehicle’s protection while you’re on the road, so you don’t have to worry about the possibility of how expensive an auto repair bill will be.
• Added benefits: Extended warranties come with a variety of additional products and services, such as towing, rental car reimbursement, and roadside assistance. In addition to not having to be worried about repair costs, you won’t worry about breaking down or having transportation while your vehicle is in the shop, either.

Why You Shouldn’t Buy The Extended Warranty

Take the time to consider the disadvantages of an extended car warranty as well:

• Exclusions: Even though the most comprehensive coverage option is often referred to as a bumper-to-bumper warranty, these plans are still “exclusionary,” meaning the warranty covers everything except a list of excluded items. Make sure you take the time to understand what the exclusions are for your chosen plan.
• Can be a risk: A company with a bad reputation and low ratings won’t provide good service and coverage to its customers. Be sure to do your research on the best-rated mechanical breakdown insurance companies and which providers are highly regarded by industry standards to avoid potential scams.
• Low usage factor: Even though it’s a good financial investment, you may never have to use your extended warranty before the contract ends. One notable study found that 55% of those who purchase extended car warranties never use their coverage.
• Lack of coverage: If you aren’t careful about what plan you choose, you might not receive the coverage you need. It’s important to read all of the terms, so you are never surprised by a repair bill.
• Warranty overlap: You might have overlapping coverage between a new car warranty from the dealership and an extended warranty. While this seems redundant, signing up for an extended warranty while you still have new car coverage actually helps you save money in the long run.

So far, we’ve touched on most of the main benefits and drawbacks of extended car warranties in relation to the obvious discrepancy between their financial soundness and popularity with customers. At this point, the most important thing left to address is the circumstances in which it makes more sense to purchase an extended car warranty. Based on facts that we’ve highlighted on both sides of the issue, purchasing an extended warranty  would make more sense for those that would agree with most of the following sentiments:

• Your Vehicle Is Unreliable: The value of an extended warranty depends on your vehicle and finances. Drivers with older or unreliable vehicles could save money by protecting their vehicle with a used car warranty.
• You Prefer Smaller, Predictable Payments: Even if you end up spending more money in the long run, you prefer replacing large, unexpected costs with small, regular payments.
• Warranties Relieve Your Anxiety: When you consider the average costs of critical vehicle component parts and systems, that peace of mind alone might be worth it for you.
• You Plan On Keeping Your Car A Long Time: If you plan to keep your vehicle for at least four or five more years, then the economics of investing in an extended warranty become more favorable.
• Your Factory Will Soon Expire: If you have a new car rather than a used vehicle, you might not need an extended warranty yet. But you should keep one in mind for when your factory warranty expires. In many cases, the best time to purchase a warranty is when a vehicle is still under protection from the factory warranty and has 80,000 miles or less.
• You Are Willing To Pay For A Service You May Not Use: As we’ve discussed, many people purchase warranties and never use them. For this reason, when you purchase an extended warranty, make sure to understand that you may never use the benefits you are paying for.
• You Are Willing To Follow Manufacturer Maintenance Requirements: To maintain coverage eligibility, most warranty companies require drivers to follow the manufacturer’s maintenance schedule and document any time a vehicle is serviced. If this is too much of a hassle, purchasing an extended warranty may not be a good idea.

Should I Buy An Extended Warranty?

If you’re on the fence about whether you could benefit from purchasing an extended car warranty, we’ve compiled a few of the top reasons you might consider adding a protection plan to your vehicle, which are highlighted below:

An extended car warranty is worth your time if you wouldn’t be able to pay for major repairs at this moment due to financial reasons and/or your vehicle is extremely unreliable. Moreover, an extended warranty may be a good choice if you purchased a used vehicle and are unsure about it’s reliability.

In this article, we provided an overview of extended car warranties, including how coverage works, how pricing is determined, and whether or not they are worth it. Extended car warranties offer drivers peace of mind and save them money on costly repairs and are worth it for drivers who cannot afford unexpected repairs and drive vehicles that are unreliable.

Extended Car Warranty Reviews: Recommended Providers

If your original warranty is set to expire and you need to extend your coverage, there are a few third-party warranties to consider. Working with a highly respected company can help you save money and headaches in the long run. In our recent review of the best third-party extended car warranty providers, we researched the top providers in the industry, looking at things like industry reputation, cost, customer reviews, and more.

In our research, there are a few providers that came out well ahead of the rest: Endurance, CARCHEX, CarShield, Olive, and Protect My Car came out as the top providers in the industry.

If you want to get quotes from a few companies so you can compare car warranty offerings and help you decide whether extended car warranties are worth it, these companies are a good place to start. Each extended warranty comes with its own terms and conditions. That’s why it’s essential to read through a contract’s fine print carefully to understand what’s included with your coverage.

Endurance: Best Coverage

Instead of being a warranty broker and finding the best rate for you among partner warranty administrators, Endurance Warranty Services is a direct provider that manages the claims for the vehicle service contracts it sells. With Endurance, you’re working directly with the warranty administrator, so this is a great choice for car owners who don’t want a middleman.

Endurance has been around for more than 10 years and is backed by an AM Best A-rated company. By working with this direct provider, you may experience a quicker claims process, and you won’t ever have to wonder who to call.

Endurance Car Warranty Plans

With six levels of coverage, you’ll have options to receive exactly the plan you desire: 

• Supreme: Bumper-to-bumper coverage
• Superior: Coverage for hundreds of components
• Secure Plus: Vital car component coverage, plus brakes, steering, and electrical components
• Secure: Vital car component coverage
• Select Premier: Basic powertrain warranty for high-mileage vehicles
• EnduranceAdvantage™: Covers mechanical breakdowns as well as maintenance

With Endurance plans, you’ll enjoy perks that include the ability to choose any licensed repair shop, claims paid directly to repair shops, and zero-interest monthly payment plans. You’ll also gain a free year of Endurance Elite Benefits, giving you access to perks such as tire repair or replacement. The membership grants you repair financing, key fob replacement and more benefits. After the first year, you would be responsible for purchasing this membership again. With many other companies, these benefits are automatically included.

Whether you opt for the Endurance Elite Benefits or not, you’ll still receive 24/7 roadside assistance, trip interruption coverage, and rental car reimbursement for the duration of your Endurance contract. Endurance also has a 30-day money-back guarantee if you are not satisfied with your coverage.

CARCHEX: Best For Used Cars

We awarded CARCHEX with the recognition of best for used cars based on the company’s offerings for high-mileage vehicles. CARCHEX also has a strong reputation, dedication to customer service, and added benefits like roadside assistance. With a history going back more than 20 years, CARCHEX reviews show the company is highly respected across the industry, which is reflected in its A+ rating and decade-long accreditation from the Better Business Bureau (BBB). Thanks to its reputation, CARCHEX maintains numerous endorsements and automotive with top automotive industry leaders like Kelley Blue Book, CARFAX, RepairPal, and Edmunds.com

CARCHEX Coverage Plans

One of the industry leaders in extended warranties for cars, CARCHEX provides plenty of coverage options to satisfy almost any car or budget. The company offers five levels of customizable plans, with various service contracts from different providers available within those levels:

• Titanium: Similar to a bumper-to-bumper warranty. Coverage for up to 10 years
• Platinum: Covers hundreds of components for up to 10 years
• Gold: Comprehensive coverage for vehicles with more than 60,000 miles for up to 10 years
• Silver: Covers essential systems for high-mileage vehicles for up to seven years
• Bronze: Basic powertrain protection for any vehicle for up to six years

CARCHEX plans include benefits such as towing and gas delivery services along with rental car reimbursement. The total list of added benefits include:

• Claims paid directly to the repair facility
• 24/7 roadside assistance
• Towing and rental car reimbursement
• Trip interruption service

CarShield: Best Value

Known for its affordable extended warranties, out choice for Best Value provider is CarShield. The most popular extended warranty company by far, CarShield has protected more than one million vehicles since opening its doors in 2005. It has a 4.1 out of 5.0-star rating on Google based on more than 8,000 reviews. CarShield is endorsed by Ernie Hudson and Adrienne Janic and has had featured spots on CNN, ESPN, and HGTV.

CarShield Coverage Plans

CarShield coverage can be canceled at any time, and there is a money back guarantee for contracts canceled within the first 30 days. With CarShield, you have the choice among six customizable warranty plans with coverage levels running from comprehensive to powertrain. CarShield has a plan designed specifically to protect high-tech components and a plan for specialty vehicles like motorcycles and ATVs. If you have a high-mileage vehicle, CarShield offers low cost warranty plans that cover up to 200,000 miles per car. Below are descriptions of each plan:

• Diamond: Bumper-to-bumper coverage
• Platinum: Comprehensive plan for high-mileage vehicles
• Gold: Powertrain coverage, plus protection for the air conditioner and starter
• Silver: Basic powertrain coverage
• Aluminum: Covers expensive electronics in modern cars
• Motorcycle and ATV: Covers specialty vehicles like motorcycles and all-terrain vehicles

CarShield offers roadside assistance and other great benefits with most plans:

• Towing and roadside assistance
• Claims paid directly to the repair shop
• Rental cars included with some plans

Olive: Best Online Warranty

Olive car warranty reviews praise its modern and digital approach to car warranty coverage. As a newer company, Olive provides affordable extended car warranty plans that are taken care of entirely online. The company offers online instant quotes, and there’s no waiting period before you can file a claim and no need for inspections before coverage begins.

Olive offers three extended auto protection plans that cover vehicles for up to three years and up to a limit of 185,000 miles. As drivers pay only a monthly subscription charge for coverage, Olive offers a low-obligation and affordable option for extended warranties. The provider receives excellent industry ratings and many positive Olive car warranty reviews.

Olive warranty plans are some of the most affordable in the industry and save drivers hassle through their online presence. If you’re looking for a forward-thinking extended warranty provider, consider Olive.

Protect My Car: Best Maintenance Plans

Protect My Car offers several service agreements that are ideal for older or high-mileage vehicles. The company also has some of the longest term lengths available for extended warranties, ranging from 36 to 60 months.

The only speed bump we ran into with Protect My Car was the quotes process, which we found to be a little confusing. Most warranty providers have intuitive online quote forms, but Protect My Car makes it hard for you to get your quote.

Extended Auto Warranty: FAQ

Below are some common frequently asked questions about extended car warranties:

Methodology