When you buy a big-ticket item like a car, it’s nice to have that shiny new manufacturer’s warranty. It may last only a short while, but for that precious period of time, you know you’re covered in the event that something should go wrong with your vehicle.
But like all good things, manufacturer warranties don’t last forever. And cars are very complicated pieces of machinery. The cost of repairing or replacing a major part of your four-wheeled machine — engine, transmission, etc. — can be prohibitively expensive.
For this reason, some car owners opt to purchase an extended warranty when they buy their vehicle. Others purchase a plan shortly before the original warranty expires — or even after the factory warranty has expired.
At BestReviews, we took a close look at the extended auto warranty market. What exactly is an extended auto warranty, how do you find a good one, and how do you avoid getting scammed? We asked these questions and more as we researched the following shopping guide.
If you’re in the market for extended auto protection of any kind, we invite you to read this shopping guide to learn about the perks and pitfalls of the auto warranty industry.
As we mentioned above, car manufacturers offer customers a factory warranty at the time of purchase.
This warranty covers the cost of repairs or replacements for a set number of years or a specific amount of mileage — typically three to five years or somewhere between 30,000 and 100,000 miles.
Car dealerships are also authorized to sell warranty extensions for a quoted price — typically $1,200 or more. The cost may be rolled into the final purchase price of the car and included in a customer’s loan.
Customers also have the option of purchasing an extended warranty from the dealership at a later date.
An extended warranty might cover repairs to the entire car. This is called “bumper to bumper” coverage.
An extended warranty might only cover repairs to specific systems, such as the engine, power drive train, or transmission.
In any case, the cost of a dealership-affiliated extended warranty can be high, and it only gets higher over time. So some consumers opt for extended warranty coverage from a private company, or “third party,” instead.
Many of the “extended auto warranties” you see on the market are actually vehicle service contracts, or VSCs.
Legally speaking, only the manufacturer of a product can offer a true warranty for that product.
A true warranty stipulates that the manufacturer (or an authorized agent) will repair or replace defective products using its own service facilities and factory parts. Other companies cannot call their coverage policy a true warranty, since there is no official affiliation with the manufacturer.
But the problem is that many third-party companies, including some scammers, will imply that they’re offering a true warranty anyway. For this reason, critics of the extended auto warranty industry call for more transparency from third-party sellers.
A company that advertises cheap “bumper to bumper” coverage is probably too good to be true. Before you sign on with a company like this, examine the fine print closely. A true “bumper to bumper” policy won’t be cheap, but it will be comprehensive.
In reality, many “extended auto warranties” sold through third parties are actually “vehicle service contracts,” or VSCs. The law differentiates between these two types of contracts, but lay people (and some disreputable business people) often don’t.
When you opt for third-party coverage, you enter into an agreement with the company in which the company accepts a substantial upfront payment for future repairs to the vehicle. Note: the money you pay to such a company should be insured in case the company becomes insolvent.
This is how it generally works: if your vehicle requires repair during the coverage period, the company issues you a reimbursement for out-of-pocket expenses or it issues a payment directly to the repair shop. Granted, not all types of repairs will be covered by an extended warranty or VSC. We’ll touch on that more later.
Before you begin shopping for an extended auto warranty — either through a dealership or third-party seller — consider whether you really need the coverage. In some instances, an extended warranty duplicates coverage already provided by the original factory warranty. Those who lease their cars (rather than buy them) may also want to think twice about purchasing an extended auto warranty.
Below are some other factors to consider before contacting a car dealership or searching for a third-party auto warranty company online.
Do you have other sources of repair funding?
Some critics of the extended warranty industry suggest that investing an equivalent amount of money in a savings account would provide the same benefits.
If you buy an extended warranty, be sure to keep up on your car’s regular maintenance. In some situations, if you cannot provide proof of attentive maintenance, the company could use that as a reason to deny your claim.
Will you be selling or keeping your vehicle?
Some people choose to trade in or sell their car as it approaches the end of its factory warranty. Others choose to keep the vehicle until it becomes too expensive to repair. If you’re planning to sell your vehicle, you probably don’t need an extended warranty — although it might increase the car’s resale value. If you’re planning to keep your car for years, you may wish to consider the dealership’s extended warranty. After all, major car systems — the powertrain, the engine, and so on — tend to fail several years after the warranty expires.
How reliable is your car?
Some auto manufacturers make better cars than others. Owners of less-reliable vehicles may want to consider an extended warranty simply because of the manufacturer’s reputation. After all, it could only be a matter of time before a major repair or replacement is required.
Some car models sustain less “wear and tear” damage over the years than others. These top performers are more likely to outlast any extended warranty coverage.
So whom should you buy your extended warranty from, a dealership or a third-party seller? Both options have their pros and cons. Here’s a breakdown of each option.
Pro: Dealerships have the advantage of a bona fide affiliation with the vehicle’s manufacturer.
Pro: The cost of a dealership-affiliated warranty can be incorporated into the overall loan. For many consumers, this makes financial sense.
Con: Many dealerships quote higher-than-average prices for their extended warranties. Buyers may not save much money in the long run, especially if their car never requires repairs.
Pro: A third-party extended auto warranty company is not bound by a specific auto maker’s terms and conditions. Quoted rates are based just as much on the open market as they are on the brand or age of the vehicle.
Con: Some unscrupulous third-party companies may falsely claim to have an association with a well-known auto company. See below for more information on potential scams and how to avoid them.
Con: Contract terms can be notoriously vague, and third-party companies may deny claims. For example, some companies will not pay for damage caused by “wear and tear” as opposed to “mechanical breakdown.”
Con: Third-party companies may require that repairs be performed only by certain authorized shops. This could lead to the use of substandard parts or uncertified technicians.
Customers may benefit from the lower cost of third-party coverage. After all, a single major repair such as a burned-out transmission or blown engine could end up costing thousands of dollars.
The harshest critics of the third-party extended auto warranty industry deem all such companies to be scams. These critics say that the only type of coverage people should consider is the type sold through legitimate car dealerships associated with specific manufacturers. These critics point to vaguely worded contracts and denial of legitimate claims as incriminating evidence.
Leading third-party auto warranty companies strongly disagree with this assessment. While there are indeed some fly-by-night companies which literally take the money and run, they argue that most warranty companies provide a needed service at a more affordable rate than dealerships and manufacturers.
Some auto warranty scammers use high-pressure telemarketing techniques to try to sway victims into agreeing to a purchase over the phone.
The very idea of your transmission burning out or your engine seizing can be frightening, indeed. But consumers need to be aware of common auto warranty scams before they respond to any cold call, newspaper ad, or online pop-up.
Some scammers take a less-aggressive approach. They don’t call you directly, but they send you postcards or other mailings that represent the “company” as a legitimate affiliate of the car’s manufacturer. In order to appear authentic, the mailing may contain specific information about your vehicle. But don’t fall for it. Legitimate car dealerships have information about your vehicle on file, but they will not use it to solicit customers for extended coverage.
One common practice among scammers is to use high-pressure telemarketing techniques. The caller appears to have accurate information about your vehicle, including the expiration date of its original factory warranty. The scammer uses this information as leverage during an aggressive cold call.
The scamming “company” may offer you a great deal on an extended warranty, but only if you act immediately. Beware: the warranty offered is actually a VSC. The terms and conditions are generally terrible for the consumer.
For some consumers, having car-repair money in reserve through a third party is preferable to going into debt over a budget-killing mechanic bill.
As a car ages, certain parts are expected to break down through normal wear and tear. Other parts — mostly the more expensive ones — tend to fail because of actual mechanical damage, like a snapped piston rod.
Some VSCs that masquerade as extended warranties cover limited types of damage. For example, they may cover wear-and-tear problems but not mechanical damage. In this scenario, you might take your car to the shop to repair a broken axle only to discover that your “warranty” does not cover your particular problem.
It is possible to purchase an extended warranty through a dealership at a later date. This is a separate financial transaction from the original sale, and it requires an out-of-pocket investment.
There is a significant legal difference between a manufacturer’s authorized warranty and a VSC. Some unscrupulous third-party companies use the term “warranty” to describe their VSC offerings in order to imply an association with the original manufacturer. But this is false advertising. In truth, a VSC is a far less appealing offer.
A number of extended auto warranty providers, including car dealerships, often tout their product as having “bumper to bumper” coverage. This terminology implies that the warranty or VSC will automatically protect every piece of the vehicle, from stem to stern. In reality, very few extended warranties cover all of the systems in an older vehicle. Sometimes, the contract only covers a problematic or expensive system, such as the powertrain or engine.
Third-party extended automobile warranties are sold at competitive rates, but the actual terms and conditions vary widely. It pays to educate yourself before investing in one of these warranties.
Customers of third-party auto warranty companies are essentially creating a hedge against any expensive repairs they might need down the road.
How do VSC companies make their money? Many contracts expire without a single repair claim filed. This benefits the seller of the agreement.
It is legal for a company to add fees to the cost of a VSC. Indeed, this is how many third-party warranty sellers stay in business.
Q. I have to admit I’m not very conscientious about my car’s regular maintenance. Could this affect my ability to get extended auto warranty coverage?
A. In many cases, yes. Part of the contract between the warranty company and customer includes maintenance requirements. The company can ask to see proof of routine maintenance when evaluating a claim. If the engine was damaged due to a lack of oil, for example, the company could deny the claim if the customer fails to provide proof of regular oil changes.
Q. I currently lease my car, and I tend to change cars every three years or so. Should I consider an extended auto warranty?
A. People who lease their cars are probably not going to benefit from an extended warranty or VSC. The terms of the lease spell out the maintenance and repair requirements of the lessee, as well as the coverage provided by the dealership. Since many car lessees opt to return their vehicles within a few years, they will most likely never need an extension of that warranty coverage.
Q. I want to buy a new car, but I’m not sure about getting an extended warranty right away. Can I change my mind and get it later?
A. You can usually purchase an extended warranty through a car dealership at any point in time. However, the cost of an extended warranty increases as the original expiration date gets closer.
If you plan to keep the car past the original factory warranty date, you’ll want to purchase the policy as soon as possible. If you allow the original warranty period to lapse, you may wish to consider shopping for less-expensive third-party coverage from a reputable company.
Q. I bought an extended auto warranty last year, but now I want to sell my car. Can I transfer the coverage to the buyer?
A. This depends on the auto warranty company’s policy on transfers. In many cases, you can transfer legal ownership of the VSC or warranty to another party, but the company might charge a fee for the service.
In other cases, the coverage follows the car, not the owner. If this applies to you, you could use the extended warranty or VSC as a selling point to potential buyers.
Nobody wants to be loaded down with car repair costs. An extended auto warranty or VSC may help protect you from exorbitant expenses down the road … or it may not. That’s just how insurance is.
At BestReviews, we want our readers to enjoy only the best services and products. We encourage you to keep the above information and tips in mind as you embark upon your journey to find the right extended auto warranty for you.