One of the most expensive options one can add to the price of a new car is an extended warranty. Here’s how to decide if you need one or not.
Before we begin, let’s define what an extended warranty is. A warranty is a guarantee by an automaker that if your vehicle breaks while covered, the automaker will pay for the cost of repairs.
When you buy a new car, it already comes with a warranty. Generally, the warranty is broken into four basic sections, Basic Coverage, Powertrain, Rust-Through and Emissions.
Let’s use Toyota as an example: When you buy a new Toyota, it comes with a 3-year, 36,000 mile (whichever comes first) Basic Coverage warranty that covers — according to Toyota — “all components other than normal wear and maintenance items.” This is a guarantee against broken parts. Warranties exclude things that wear out normally such as your tires and wiper blades. During this period pretty much anything else that breaks will be fixed by Toyota at one of its dealerships (it need not be the one where you bought the vehicle).
Next is the second part, or the Powertrain warranty. Toyota’s warranty is typical of the industry and covers — as detailed on Toyota’s Customer Help page — “engine, transmission/transaxle, front-wheel-drive system and rear-wheel drive,” though it would also cover four-wheel-drive and all-wheel drive components. Toyota’s Powertrain coverage extends out to five years or 60,000 miles, but some manufacturers offer even longer coverage.
Third, most new car warranties cover Rust-Through protection. In Toyota’s case, the warranty covers the vehicle for five years or unlimited mileage for “corrosion perforation of sheetmetal.”
Finally, manufacturers offer warranties on Emissions components, but those warranties are generally dictated by both federal agencies and state agencies.
Now that we have clearly explained what a warranty is, you should ask yourself how long you plan to own the car. If you have leased the car, you are not buying an extended warranty. That would be silly, since you won’t own the car past its normal, factory-equipped warranty. If you plan to keep the vehicle no longer than the drivetrain warranty, do not buy an extended warranty. Although something might go wrong with a part of the vehicle after the 3-year period is up, fixing it won’t cost you nearly as much as the cost of an extended warranty.
If you do plan to keep the vehicle longer than the drivetrain warranty, you can consider buying an extended warranty. They usually cost between $1,000 and $2,500 depending upon the cost of the vehicle and the manufacturer.
For vehicles with good reliability reputations, you might not need an extended warranty. Even if you have a major failure, it may not exceed the cost of the extended warranty you buy. However, for vehicles with poor reliability reputations buying a warranty can make sense if you plan to keep the vehicle well past its drivetrain warranty.
Also, if you buy an unusual vehicle, for example, a convertible with a power retractable hard-top roof, or a car with some new bit of untested technology, an extended warranty may make sense since repairs can be extra costly.
The other consideration is what an extended warranty may be worth when you decide to sell your car. Extended warranties are often transferable to a second or even third owner, which may be a selling point for your car, versus one without that added protection.
If you consider an extended warranty here is a checklist of things to look for:
Only buy an extended warranty from the automaker that sells you the vehicle (Audi Financial Services, for example)
Be sure the duration is well past the end of the drivetrain warranty
Look to see if it is transferable if you sell the vehicle before it is expired. Some require a nominal fee.
Only consider a “bumper to bumper” type extended warranty. Wear items will be excluded (Brake pads, tires, maintenance), but the rest of the vehicle should be covered.
Consider the top level with no deductible. Why buy an extension that only pays part of the repair costs?
Ask if a replacement vehicle (rental or dealer loaner) is included in the plan. It should be. This allows you to leave the car at the dealer and drive a loaner while repairs are made.
Extended warranties offered by the automakers themselves are reputable, and they do cover the promised repairs. Just be sure to consider how long you will keep the vehicle, only buy one backed by the automaker themselves, and always shop for the best price by calling multiple dealers.
One final note: You don’t have to buy the extended warranty at the dealership on the day that you buy the vehicle, unless you want to roll the cost of the warranty into your financing. It’s likely that you’ll have the option to purchase an extended warranty as long as the Basic Warranty period hasn’t expired, but check with your manufacturer.
Top of page image courtesy of Mercedes-Benz. Second Image Courtesy of BMW. Third image courtesy of Porsche.