What is a car warranty?

A car warranty is a contract provided by your vehicle’s manufacturer or a third party that guarantees they’ll repair or replace certain components that fail due to design or installation defects within a specified time frame. A car warranty covers repairs that a standard car insurance policy wouldn’t cover, but it typically won’t pay for maintenance or normal wear and tear. To help you understand how your warranty works or determine whether an extended warranty makes sense for you, Bankrate’s insurance editorial team broke down the basics of car warranties.

What is a warranty on a car?

A warranty on a car is a type of service contract that covers certain components of your vehicle, such as the engine, transmission and electronic systems, that are subject to mechanical defects. When you get a warranty on a new car, it’s basically a guarantee from the manufacturer that your car is in working order — and that if it turns out to have unexpected problems with key components, they’ll foot the bill to fix it.

• How a warranty works: If your car needs repairs that weren’t caused by an accident and don’t fall under the bill of normal wear and tear, your dealer can file a warranty claim. When the warranty provider authorizes the claim, the repairs can proceed under warranty at a reduced cost to you.
• What a warranty covers on a car: A comprehensive bumper-to-bumper warranty covers most parts in your car, but it won’t pay for damage caused by an accident or for parts that are designed to wear out, like brake pads. Other warranties may cover only certain components, such as the powertrain or restraint systems.
• How long a warranty lasts: New car warranties typically last for three years or 36,000 miles (whichever comes first), but some automakers, such as Kia and Hyundai, have longer warranties.
• What could void your warranty: You can void a typical car warranty by failing to perform regular maintenance, using your car for racing and other motorsports activities, towing too much weight or making unauthorized modifications to the vehicle.

Car warranties taken out after the manufacturer’s warranty expires are called extended warranties. Extended warranties must be purchased independently and typically have a deductible, unless manufacturer’s warranties.

Types of car warranties

There are two main types of car warranties: the manufacturer’s warranty and the extended warranty. Contracts within these categories do vary to some degree, however. For instance, one manufacturer’s warranty may cover more parts, for a longer period, than a competitor. It is standard for both types of warranties to cover defects and manufacturing faults, at a minimum.

Manufacturer’s warranty

Your manufacturer’s warranty is a guarantee that the vehicle is in proper working condition. This warranty is built to cover the costs of repairs and replacements if the car experiences a malfunction or breakage due to some fault on the manufacturer’s side. This type of warranty typically excludes damage due to an accident or other incident covered by insurance, normal wear and tear and damage caused by improper use of the vehicle. Manufacturers’ warranties come included with the purchase of most new cars.

Two of the most popular types of manufacturer’s warranties are powertrain warranties and bumper-to-bumper warranties.

• Powertrain warranty: Only covers damage to the vehicle’s propulsion system, including the engine, driveshaft and transmission.
• Bumper-to-bumper warranty: Covers nearly all vehicle components except for those designed to wear out over time, such as glass, tires and brake pads.

Extended warranty

When the manufacturer’s warranty on a vehicle expires, you have the option to purchase an extended warranty to add a vehicle service contract that applies after the original factory warranty is no longer active. You can either purchase an original equipment manufacturer (OEM) warranty from the automaker or an aftermarket warranty from a third party.

What is an extended warranty?

An extended warranty is a vehicle service contract that you purchase for your car. While it can be added to your purchase when you initially buy your car, the extended warranty often won’t apply until the factory warranty expires.

Within extended warranties, there are two primary types: original equipment manufacturers and aftermarket warranties. The first is issued by the original manufacturer of the vehicle. In contrast, the second is sold by car warranty companies or other third parties. There can be a significant variance between different aftermarket warranties. At the same time, most OEMs stay reasonably similar in structure to the original manufacturer’s warranty.

Buying an extended car warranty is a strategic choice. If your car experiences problems because of covered damages, you can file a claim with your extended warranty. If approved, the warranty company will pay for the repairs. These payments have limits specified within your warranty contract. There will be an initial service fee with each claim you file with the company.

The strategy within all of this is to estimate how likely your car is to experience the types of problems that a warranty covers within the time frame that the warranty is for, and then to compare the cost of a contract to those repairs. If the warranty would be cheaper or close in price, it could be a strategically sound investment. If the repairs would be less expensive out of pocket than the contract, there would be little reason to purchase it.

First-hand insights: Why extended car warranties get a bad rap

Extended warranties have become an object of ridicule thanks to phone scams that purport to be reaching out “about your car’s extended warranty.” But are extended warranties a tool for scammers — or are they the scam themselves? To get a better insight, we looked to Reddit forums where car sales professionals explained the difference.

“A legitimate extended warranty would be arranged between you and the dealer when you buy the car,” said a user on r/explainlikeimfive, “or maybe when you bring it in for servicing for the last (expected) time during the original warranty interval. There are very few occasions where such a warranty would involve a phone call beyond ‘please make an appointment at your dealership’. Thus cold calls that expect you to sign up or pay for a warranty on the phone are very likely to be scams.”

Another forum user offered a less pessimistic view of extended warranties: “You’re buying peace of mind, and for anyone that keeps their vehicles beyond the warranty term, they make absolute sense! On today’s vehicles, one repair can cost more than the warranty itself. We sell premium, factory-backed warranties only, and I always recommend one to my customers that tend to keep their cars, but there will always be those customers that just don’t see the value.”

The bottom line: legitimate extended warranties from both manufacturers and third parties exist, although they may not be right for every driver. If you’re not confident of your ability to pay for major repairs during the warranty’s covered period, it may be worth it — but read the terms carefully to understand what will (and won’t!) be covered before you sign.

Car warranty vs. car insurance

Car warranties and car insurance both help to offset out-of-pocket costs associated with repairing your car, but a warranty is not insurance. Car insurance is a mandatory form of financial protection that guards against incidents such as car accidents, severe weather and auto theft. Warranties, on the other hand, cover parts that don’t live up to manufacturer standards and result in premature repairs through normal use.

Car insurance also covers damages to others, including medical expenses and vehicle repairs you’re responsible for. The primary purpose of liability car insurance — the type mandated by most states — is to cover your legal liability, not your own vehicle. The table below gives a more detailed breakdown of what warranties and insurance do and don’t cover.

Frequently asked questions

• How long do car warranties last?

  It depends on the type of car warranty and other factors. In general, manufacturer warranties will typically be valid for about three years or for the first 36,000 miles, depending on which one comes first. If you purchase an extended warranty on a vehicle, it’s typically paid for and renewed on a yearly basis in most cases, but that can also vary. Make sure you understand the terms of the car warranty before you purchase it so you can make sure it covers what you’re expecting, should something go wrong with your vehicle in the future.
  

• Are car warranties worth it?

  Whether or not a car warranty is worth it depends on what you want and need from the warranty. Car warranties can cover you in a pinch, but they don’t cover everything, and it’s always possible that you won’t end up using your warranty coverage. If you’re purchasing an extended warranty, you may realize that the annual warranty cost is higher than the necessary repairs for your vehicle. However, if you’re concerned that you may have major or numerous car repairs to deal with in the near future, a warranty could make sense for your situation.
  

• How much does an extended warranty cost?

  The price of an extended warranty can vary, sometimes significantly, depending on various factors. In general, an extended warranty can cost as little as a few hundred dollars per year or as much as a couple thousand — closer to the average cost of car insurance. The coverage and limitations on the warranty, the issuer of the contract and the vehicle being covered will all factor into the cost.
  

• What are standard exclusions in car warranties?

  Most warranties will exclude parts expected to wear down from regular use. This includes tires, windshield wipers, most of the fluids in your car, brake pad, and other short-term parts. Warranties typically also exclude damage caused by accidents or by anything not considered normal use of the vehicle, such as racing.