Is an extended car warranty worth it?

An extended car warranty can protect you from financial stress if your car requires unexpected repairs. But the additional monthly cost might not be worth it for every driver. Before buying an extended warranty, consider if it is worth it for your needs and how much it will likely cost.

How much does an extended car warranty cost?

Cost is a major factor when considering extended car warranties. Extended warranties range in price, averaging between $1,300 and $4,600 per year. The price tag hinges on a handful of factors, such as:

• The provider.
• What is covered in your existing warranty.
• The make, model and year of your car.
• Your car’s mileage.
• Where you live and how much you drive.
• The cost of replacing parts and labor.
• Discounts you are eligible for.

Other factors that impact the cost of an extended car warranty include the extent of coverage, the level of coverage and your deductible. The higher your deductible, the lower the coverage’s cost. On the flip side, the lower your deductible, the higher your premium.

What does an extended warranty cover?

An extended warranty on your vehicle typically covers unforeseen, expensive repairs involving major vehicle systems, including heating/air, the engine and brakes. Your exact coverage will depend on the warranty you purchase and may include parts, labor or both. Some extended warranties offer optional coverage for roadside assistance, tires and other vehicle-related expenses you may encounter.

• Bumper-to-bumper warranty: The most extensive warranty; covers damages to most vehicle parts (excluding glass) but does not cover maintenance and regular wear-and-tear.
• Powertrain warranty: Covers electrical parts of the vehicle, such as the engine, transmission and other electrical components.
• Drivetrain warranty: Covers parts such as the driveshaft, axles, wheels and transmission but excludes the engine.
• Wrap warranty: Extends your bumper-to-bumper warranty if it expires before other warranties on your car do.
• Corrosion warranty: Covers the cost of repairing rust damage and other corrosion on your vehicle’s exterior.

Extended car warranty drawbacks

While an extended car warranty can help you save on expensive repairs, it is not the best financial choice for all types of drivers.

Not all repairs are covered

Because an extended car warranty typically matches the new car’s warranty, it also mirrors the limits such as mileage and what repairs are included. Look at the fine print and the exclusions list when determining if the coverage offered is worth the cost.

There’s a time limit

Extended car warranties are only good for the period of the extended warranty. For instance, it might extend your original warranty by two years and 24,000 miles. If you started with a warranty that was three years and 36,000 miles, that would mean the full warranty is five years and 60,000 miles.

You might not use it

Although a good percentage of drivers have extended warranties on their vehicles, many do not end up using them. According to Consumer Affairs data, 37 percent of vehicle owners have coverage, but only 1 in 10 ever use it.

You might not need it in the first place

Know the track record of the vehicle you want to purchase by researching, including looking at car reviews. That’s what Renee Valdes, senior advice editor at Kelley Blue Book, recommends. “If the vehicle boasts a solid track record, think twice before signing on for an extended warranty,” says Valdes.

That money could be put toward emergency savings instead. Emergency savings can pay for any car repair, not just repairs covered under the extended warranty — and there’s no expiration date.

When it makes sense to buy an extended car warranty

An extended car warranty is only useful under very specific conditions.

Extended warranties might work well for luxury car buyers who plan to drive their cars for many years beyond the bumper-to-bumper and powertrain warranties, Valdes adds. “There’s nothing worse than getting stuck with a big bill for a broken item on your luxury vehicle when there’s no warranty to cover the item,” says Valdes.

If you’re buying a used car and the manufacturer’s warranty has ended, hopping on an extended car warranty might be a good idea. Manufacturer warranting information can be found on the sticker tag on the car’s window. If you can afford to purchase a warranty, it can help pay for covered repairs.

It’s helpful to research what car maintenance costs will be during the first years of ownership. Even better, stay on top of your car’s upkeep to reduce instances of costly repairs.

“It’s always best to keep up with car maintenance so your overall repair costs remain low over the timeframe you own your vehicle,” says Valdes.

The bottom line

An extended car warranty is not for everyone. To see if an extended warranty is worth it for your financed vehicle, do your homework and get some quotes. Research what repairs your car may need in the next few years and ensure they’re covered under a particular warranty.