Automotive Extended Warranties Explained

Extended warranties are a common "after-sale" product at most car dealerships. But how do you know if an extended warranty is the right thing for you and your car? As a car salesman and finance guy, I hope I can help answer some questions and put you at ease.


1. Extended warranties aren't for everyone.

In certain cases it just doesn't make sense to buy an extended warranty. For example, if you habitually buy new cars and trade them in again every 1-3 years, then you probably shouldn't buy one. Are you a member of the 1% club and can pay cash for your cars? If so, you can likely afford to take the gamble and pay for vehicle repairs out of pocket. For the rest of us, especially those of us living on a budget, extended warranties make good sense. Most "vehicle service contracts," as they're otherwise known, cost an average of $1,500 to $2,500 for comprehensive coverage. This usually equates to $20-$40 a month if you were to bundle the warranty into your auto loan, which is common practice. It's easy to pay $20-$40 a month to protect your car, whereas coming out of pocket for unexpected repairs can cost thousands of dollars and will surely put a damper in your kids' Christmas present hedge fund.


2. Not all extended warranty companies are created equal

In short, do your research. I've heard firsthand about customers paying good money for an extended warranty that's backed by a "here today, gone tomorrow" company. It's one thing regretting the purchase of an extended warranty if you don't ever use it, but it's another thing entirely when your extended warranty is suddenly void due to shady business practices. Check the BBB and the company's website. Keep in mind that there will always be negative reviews, but when you stack those couple dozen unhappy reviews next to the hundreds of thousands of happy customers, well, you get the idea. 

In addition, covereages will vary from company to company. Again do your research, ask questions, and read fine print if you have to. A quality extended warranty company will include free towing, roadside assistance, and rental car reimbursement, in addition to comprehensive "bumper-to-bumper" style warranties, and the only items excluded from coverage will be "wear and tear" items like tires, brake pads, glass, etc.


3. It's all about the car

When contemplating an extended warranty, consider the vehicle you're purchasing. Is it a complicated car with lots of features and technology? Or is it a stripped Toyota Yaris with crank windows? The Yaris warranty will be cheap (for obvious reasons), but if you're truly concerned about it's longevity and health, then by all means get the warranty. Otherwise, you're likely safe without it unless you're a broke college student working 15 hours a week at Starbucks. On a Mini Cooper, contrarily, the warranty will cost quite a bit more than the similarly-sized Yaris. Why? Technology. There's a lot more that goes into a Mini than meets the eye, and as a result, an extended warranty will almost certainly come in handy down the road. 



4. Everything is negotiable

Well, at least the price is. If the finance guy at the car lot tells you he can't budge on the price of the warranty, he's full of it, and you can tell him I gave you permission to tell him so. You could expect to get a small discount on the warranty if you're nice enough, perhaps in the area of a couple hundred bucks. However, those finance guys make all their money selling you after-sale products like warranties, GAP insurance (I'll cover that in another article), paint protection, pre-paid maintenance, and the like. He won't be willing to sell anything at dealer cost, but he'll certainly work with you in order to close a sale.

On this same topic, don't buy coverage that you won't use. You can customize the term and mileage for your extended warranty. For example, I wouldn't sell a 5 year, 100,000 mile warranty to a retired grandma who drives a couple thousand miles per year. Other finance guys could care less what term you buy. If you drive 30,000 miles per year, get the 3 or 4 year,


In the end, the choice is always your own. Don't let someone pressure you into buying a product you don't want. However, make sure you consider all of the possible outcomes before slamming the door shut with a "NO." I've seen extended warranties come through and save people time and time again, and you'd be silly if you didn't at least consider the benefits.