Extended Car Warranties: 3 Things to Know

With most Money Talks News stories, we come up with a topic, then pound the pavement looking for the video we need and the people we need to interview. This story, however, came to us. The lady you'll see in the video is Debbie, a media relations consultant I've worked with in the past. She called me with this story so she could prevent others from running into the same extended-warranty ditch she did. Check it out, then meet me below for more detail.

Debbie was embarrassed to appear in this story because she felt foolish for continuing to pay $15 every month for coverage long after it had expired. But you can't blame her for forgetting details of a policy six years after she signed up for it. I certainly would have. That's why if you're going to travel this road, you need to keep your eye on these three things. (See also: Are Extended Warranties Ever a Good Deal?)

1. Know what it covers, and when it expires

One way you might try to keep track of an extended warranty is to make yourself a quick “crib-sheet” with your basic policy information and keep it with your registration and proof of insurance in your glove box. Then, every year when you replace your proof of insurance with a new one, a glance at your sheet will tell you if your extended warranty is still in force and you'll get a reminder of your policies particulars.

And that brings up something crucial about extended car warranties: they’re not actually warranties in the technical sense. They’re really insurance policies. And like insurance policies, they can vary wildly concerning what’s covered, what’s not, deductibles, and transferability. So when you’re shopping policies, you’ve really got to dig into the fine print and compare. Don’t have the time? Don’t spend a dime.

Be aware that newer cars with fancy gadgets often cost a ton to repair. Here’s a story I did on that: High Tech Cars Mean Costly Repairs.

2. Shop an extended warranty like you shop a car

By this I mean don’t buy the first thing that strikes your fancy. Kick a few tires. And keep in mind that in addition to the dealer, extended warranties are available from insurance companies, companies that specialize in just these policies and even some credit unions. And you don't have to buy one when your car is new: they're available pretty much any time (although the older your car, the more expensive the policy). And wherever you shop, don’t forget the final tip…

3. Ask questions: lots of them

  • Is there a deductible? How much?
  • Is it per visit or per repair? (In other words, if you bring your car in and they find three separate things wrong, is there a deductible for each, or just one for the visit?)
  • Can you bring your car anywhere or just to the dealer?
  • Do you have to pay the bill and submit it to the warranty company, or will they pay the repair shop directly?
  • What’s specifically excluded?
  • Is the warranty transferable?
  • Is it a “break-down” warranty (covering only parts that actually break) or a “wear-and-tear” warranty (paying for parts that just plain wear out)?
  • How long will it last (both in terms of years and miles)?
  • How much does it cost?”

Make sure the policy you're considering dovetails with the manufacturer’s warranty: in other words, if your manufacturer’s warranty is already covering something, there’s no need to pay for protection you already have.

One final tip: an extended warranty is only as good as the company that backs it. If they disappear, so does your protection. So if it’s an insurance company, make sure they have at least an “A” rating from either AM Best or Standard & Poors. If I was writing this several years ago, I would have said this wasn’t a concern if you were buying your warranty directly from the manufacturer. These days, however, I’m not so sure.

I've never had an extended warranty. I tend to buy my cars older and I'd rather gamble that I can them on the road for less money than a warranty would cost. And I also have a motorcycle as a second mode of transport if my car goes in the shop. But if you're the type that needs to feel protected, protect yourself from a bad extended warranty buy by following these simple rules as you approach these things. For more stories on cars, visit the auto section of my website.

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Guest's picture

The price of a warranty at an auto dealer is negotiable! Always make a counter offer to the price quoted.

Guest's picture

I recently had a very expensive repair to make to the used car I bought and I thought - man, I wish I had an extended warranty. Thank you for this article, I will reference the next time I am in a car buying situation.

Guest's picture

This is good adivce. I got suckered into buying an extended warranty on my first car. It turned out to be a waste. The warranty was overpriced and didn't cover things I'd had assumed it would.

Guest's picture

Thanks for the post. I think a lot of people don't know a lot about warranties, so if they want one they just buy one without doing the research...Any time you are spending a good amount of money it is worth shopping around and asking questions. The question I like is "is this price the best you can do?" I am surprised how often they are able to lower it or through something else int to make it an even better deal. You don't know unless you ask!

Guest's picture

You are far better off setting up a "warranty savings account". Any time you feel the need to purchase an extended warranty, ask the price and instead deposit that money into this account. Use this account to pay for repairs. This is a win/win for you. If it breaks, you have the money to pay for it. If it doesn't break, you keep the money!

Guest's picture

I almost got caught by this. I purchased a plan, but when I got the contract and read the disqualifications, it said ANY NON-DEALER installed tow hitches.

It's your responsibility to check for this, and if you don't they simply not honor a claim the first time you try. Then, you'll have to try to get a partial refund on the plan if it even allows it.

I then went to another company, and specifically asked the sales person and they said 'No problem, your covered'. When I got the contract (before I bought it), it too, has the EXACT SAME exclusion listed. DON"T trust the sales people on the phone. READ IT YOURSELF.... Completely!

Good luck

Guest's picture

Watch out for a warranty plan being offered from a company other than the manufacturer of the vehicle. I had one once and they did not honor it for a covered item. All they could do is come up with excuses not to pay you or your claim. Always keep service records on the vehicle covered and follow the manufacturers maintenance schedule. Companies offering warranties that are not being offered by the manufacturer of the vehicle are in business to make money and deny claims. I had a head gasket leak on a covered car, and the warrany company listed the gasket as a covered item. However, when they were informed about the problem they wanted me to pay $1,500.00 for a teardown inorder for one of their representatives to come to the service garage to inspect the condition. I had no assurance from this company that they would even pay my claim or put my car back together. After that, I have always bought warranties directly from the manufacturer of the vehicle and they have always paid when something broke without any questions or hastles.

Guest's picture
Elgog Partynipple

One of the biggest tricks for after market warrantee is that they will not pay more for a repair than the Yellow book value of the car. While most after market warrantees cost thousands of dollars, $2,000-$3,000, you need a lot of repairs to make this warrantee pay off. By the time your car needs these types of repairs, it's usually old and has high mileage. If the repair exceeds the valuse of the car, they will "Total" it and not pay for the repair. You're out the money and the car. I have noticed that TV advertising for these warrantees say they cover cars with up to 250,000 miles. What value do you think a car with a quarter million miles has? I traded a 4 year old car with 180,000 miles on it and Kelly calculated the trade in value of $2,200.

This problem is on top of the well documented problem of after market warrantee companies denying claims that are specifically covered. They best bet is to put some money away for a rainy day and perform the recommended maintenance on your car. For instance, fluid levels are easy to maintain. Timing chains usually need replacing between 70,000 to 100,000 miles and costs about $800-$1,000. Be mindful of maintenance and be prepared to pay. Owing a car is expensive. A little maintenance and fore thought can go a long way. Here is a good tip. If you need a car repair, find out if there is a maintenance item in the same area as the repair and have it maintained with the repair. Often takeing the car apart is the most expensive part of the repair and you can just pay for parts if you do the maintenance with an already required repair.

Guest's picture

It is always good to know what you should be asking when looking for a car warranty, I don't think anyone has money to throw away so always make sure you get the most out of your warranty :)

Guest's picture

When buying and extended warranty it is very important to find out who is actually offering it. If sellers offer a third-party warranty then you should check the background of the company.

Guest's picture

There's now many different types of extended car warranty and an array of providers out there - and this is a great job summarising the key points to look for.

One extra addition you might want to mention is a "Lite" warranty - which offers a substantial saving to cover the same components as a regular warranty.

The reason for this is it only covers failures that cause the vehicle to breakdown at roadside - so not those identified while at a garage.