It’s part of our car buyer’s glossary series to break all the prerequisites to find out if you’re buying a new or used car from a dealership.
Here’s the short answer: An extended warranty is the coverage you purchase that comes into effect after the original factory warranty expires. Generally, you can buy it at any time before the factory warranty expires. Extended warranty can be offered by the manufacturer or by a third party company – and both types can be sold to you at the dealership. This is also known as a service contract.
Let’s clear up some things before we go any further. Below is more information about each of these points
- You do not have to buy an extended warranty when buying a car.
- You will not need an extended warranty to qualify for financing.
- You probably shouldn’t buy an extended warranty at all. Yes, you are right.
It is important to understand what kind of warranty you are buying and who is actually responsible for managing the warranty. The fact that you are offered a warranty at a Ford or Toyota dealership when you buy a car does not mean that it is a Ford- or Toyota-backed warranty. Find out who the carrier is and do some research to see how satisfied people are with the claims process.
You will want to ensure that the warranty will be honored by the dealer or mechanic to whom you plan to service the car and will also cover a wide network of other dealers near where you plan to use the car. What is the benefit of an extended warranty if your car breaks down and there is no participating mechanics to tow it in the tow truck?
An extended warranty that covers – even what it claims to be a “bumper-to-bumper” – has very little consistency. You will want to read the terms carefully. Fortunately, most warranties are written to tell you everything Is not Covered – If it’s not on the exclusion list, it’s covered. The bottom line here is: read everything very carefully.
And then there’s the vague math involved in figuring out whether an extended warranty will actually save you money. We say “unclear” because it does not say what could break the warranty period. It’s somewhere between buying insurance and gambling. For most casual buyers, it’s almost impossible to run numbers here to determine the price offer.
This is partly because modern cars are fairly reliable. Many do not require serious repairs that are not related to recall in the service life of the car. And extended warranties won’t help the cost of what we refer to as “consumables” in the industry – items like tires, brake pads and rotors, and certain expensive exhaust components that run out over time. These are the costs that most car owners need to budget for, not a rare crash engine or transmission failure.
Another quick point: we have heard that car buyers are being harassed by dealers for buying extended warranties as a condition of getting financing. For lack of a good word, this is a scam. Find out who is financing the lender and ask them before signing any paperwork. They will almost certainly tell you that it is fake. If they require an extended warranty as a condition of lending to you … you should go with another lender.
Some reputable consumer advocacy organizations, e.g. Consumer reports, Strongly advises consumers not to bother with the extended warranty. For this reason, as CR “Extended warranties can have many bundles, depending on the fine print of the contract for denial of coverage for almost any reason,” he said. They recommend that you budget some money for unexpected repairs after the warranty period expires – your bank account cannot deny coverage of repairs. There is no fine print.
We tend to agree Consumer reports Here. There is a lot of unknown involved with the extended warranty, but one guarantee: you will pay a lot of money for a benefit that is hard to understand or difficult to accept. And probably won’t.
If you set your heart on a car that has a really bad reputation for braking right after the warranty period and you feel comfortable understanding the legal language of the warranty, then perhaps an extended warranty is right for you. You will want one that matches the terms of your original warranty as much as possible, especially those offered by the car manufacturer and not a third party – a truly extended warranty.
So what about that service contract thing? This is the technical name of an extended warranty. Warranties are included in the purchase price at the time of sale – any additional coverage that is purchased for a specified period after the expiration of the initial warranty period is known as a service agreement. This is another, more accurate, way of mentioning the same thing.