Pros and Cons of Extended Warranties

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There are basically two types of extended warranties; those offered directly from the automaker, and aftermarket warranties that are available from third-party companies. An extended warranty from a car manufacturer is very similar to the warranties that come with the vehicle when new, they are simply extensions of those policies. Some will include extras such as emergency roadside service. Third-party service contracts often have exclusions and requirements that are different from the manufacturer's warranties.
However, most extended warranties have a deductible amount that you have to pay, similar to auto insurance, before work is completed. Contracts with automakers tend to have lower deductible amounts when compared with third-party contracts. Also keep in mind that extended warranties from third-party vendors vary widely, often including high deductibles, they may limit where you can have your vehicle repaired, and there is no guarantee they will use parts from the original auto manufacturer.

Who Needs an Extended Warranty?

The need to purchase an extended warranty for your car depends entirely on whether you plan on keeping your vehicle after the manufacturer's warranties have run their course. Most vehicles come with a factory warranty package that runs a minimum of three years or 36,000 miles. If you are thinking about keeping your car five years or longer, an extended warranty might be right for you.
An extended warranty plan is like having an insurance policy for your car. It pays for expensive repairs that might pop up from time to time. These "service contracts" are sold separately from the powertrain and bump-to-bumper warranties that come with every new car.
The Pros and Cons
When you buy a new car, part of the process involves time spent in the Finance and Insurance Office. This is where you go over your purchase contract and you are offered various extra coverage and products for your car. You will no doubt be offered an extended service contract. These extended warranties vary widely in price, with the average contract costing around $2,800 as of this writing. Full coverage begins as your factory new car warranties expire. Generally speaking, most consumers want to have warranty coverage for as long as they are still making monthly payments on the car.

Save Money on Expensive Repairs
The main reason that people buy extended warranties is that they are afraid that they will be stuck with major repair bills once the factory warranties expire. We're talking about paying for the expense of replacing an engine, which can range from $4,000 to $8,000 depending on the engine. Replacing a transmission is also pricey, ranging from $2,500 to $4,000.
If your extended warranty covers the replacement of a motor or tranny, all you would have to pay is the deductible amount.

Your Vehicle may Last Longer
As vehicles age, components wear out. As we mentioned, the big dollar concerns are for replacing engines and transmissions, but other parts of your vehicle can be very expensive to repair as well. These repairs can be anything from replacing a head gasket to replacing shocks and struts. Those kinds or repairs can cost $2,000 or more each. Replacing the catalytic converter can run you over $3,500. You get the idea.
Service guidelines in your Owner's Manual help you take care of ongoing maintenance of your vehicle. These include engine oil and filter changes, tire rotations, battery maintenance, checking the brake components, the hoses and belts, and keeping all the fluids topped off. Keeping the service up to date as your car ages will make sure it is ready for the road for many trouble-free miles. Today's cars last longer. It's not unusual to put over 300,000 miles on a car.

Choose Your Coverage
Extended warranty companies offer a variety of plans that are customizable for your specific needs and budget. These include the kind of bumper-to-bumper and powertrain coverage you had in your original factory warranties and can often include extra coverage for trip interruption protection, roadside assistance, and towing.

Exclusions and Deductibles
When you purchase a service contract, it doesn't start covering you right away. There is usually a wait time of 30 days or 1,000 miles, so don't expect to use your extended warranty right away. There is a wide range of protection available depending on the plan, and this includes "exclusions" which are vehicle parts that are not covered. Which is why you have to pay particular attention to what your contract covers, and more importantly, what it does not.
Third-party contracts often include higher deductible amounts than extended warranties by manufacturers, and some deductible amounts must be paid "per visit" while others are "per repair." This can be tricky because "per repair" means that you end up paying a deductible amount for each part that is repaired, and that's not good.
Extended Warranties Cost More As your Car Ages
An extended service contract kicks in as your original factory warranty expires. These contracts are cheaper to obtain when your car is newer and get more expensive as your car ages. The cost of purchasing a warranty can get considerably more expensive the longer you wait. For the company selling the contract, it is all about calculating risk and the likelihood that you will use the product.
Speaking of, only 47 percent of car owners have an extended warranty, and of those, only one in ten has actually ever used their service contract. Rather than buying an extended warranty, many car owners prefer to set aside a fund for big car repairs.
Paying for Repairs might be Cheaper
Buying an extended warranty will cost you at least $800 per year while it is in effect. So, the question to ask yourself is, how much do you spend per year on auto repairs? Today's cars are more reliable than ever before and as we stated at the beginning of this article, you may not need an extended warranty unless you plan to keep your car for a very long time.

Extended Warranty Statistics

The extended warranty market is forecast to reach $60.82 billion by 2030. As of 2023, there are 342 extended warranty providers in the United States providing employment for 18,440 people. Approximately 92 percent of people requesting an extended warranty quote are male and 75 percent of extended warranty owners are married. Over 86 percent bought their service contract when they bought the car.
Approximately 37 percent of car owners have an active extended warranty and only one in ten have actually used it. The two top reasons why people say they do not have an extended warranty is that they think the coverage is too expensive and that they will never use it. According to the National Education Association, extended warranties usually provide coverage from two to seven years. As of this writing in 2023, 54 percent of people who own an extended warranty say they purchased it at the dealership and 23 percent got theirs from a third-party company. Of those who have an extended warranty, 63 percent say their policy gives them peace of mind.
The Wrap Up
If you're contemplating getting an extended warranty, narrow your list of companies to compare by reading online reviews and check with the Better Business Bureau for reports. Remember that you can purchase an extended warranty service contract at any time, and if you don't like it, most can be canceled.
The right warranty can help you save money on repairs as your vehicle ages. Most extended warranties are transferable between owners, which means your car with its transferable extended warranty might be more attractive to buyers when you decide to sell.