It’s one of the most common upsells at the dealership: “Would you like to add an extended warranty?”
The promise sounds simple: avoid expensive repair bills once factory coverage runs out. However, extended warranties often come with high costs, unclear terms, and limited payouts.
So, are they a smart investment or just extra profit for the dealership?
In this guide, we’ll go over the benefits and drawbacks of extended warranties so you can decide when one is worth considering and when it makes more sense to skip it.
What’s an Extended Car Warranty & What Does It Cover?
An extended car warranty is a service contract that covers certain repair costs after your vehicle’s original factory warranty expires. You can purchase these contracts from the dealer, the vehicle manufacturer, or a third-party provider.
Extended warranties often come with varying levels of protection, and understanding your options can help you choose a plan that matches your needs:
- Bumper-to-bumper warranty: Offers broad coverage, excluding routine maintenance and wear-and-tear items.
- Powertrain warranty: Covers key internal components like the engine, transmission, and related electronics.
- Drivetrain warranty: Focuses on driveshaft and axles (excluding engine).
- Wrap warranty: Extends your bumper-to-bumper warranty if it expires before the other warranties on your car.
- Corrosion warranty: Covers rust or corrosion damage to the vehicle’s exterior caused by road salt or environmental exposure.
4 Perks of Extended Warranties
Here’s how you might benefit by opting for extended coverage:
1. Protection Against Expensive Repairs
Modern cars include complex components and electronics that can be costly to repair. If your engine or transmission fails outside the factory warranty, the repair bill could easily reach $10,000+.
An extended warranty helps cover these costs, especially if you plan to keep the vehicle for many years.
2. More Predictable Costs
For some drivers, the biggest benefit of an extended warranty is cost certainty. Instead of facing unpredictable repair expenses, you pay a fixed amount upfront or every month.
3. Added Convenience
Many extended warranty plans include extras such as:
- Roadside assistance
- Towing services
- Rental car reimbursement
- Coverage for trip interruptions (such as lodging or meals if your car breaks down far from home)
While not essential, these benefits reduce stress if something goes wrong.
4. Potential Boost in Resale Value
Some extended warranties can be transferred to a new owner, which increases your car’s resale appeal. A buyer may feel more confident purchasing a vehicle with coverage, especially if it’s outside the factory warranty.
5 Drawbacks of Extended Warranties
Before you commit, beware of the common downsides:
1. High Cost
Extended warranties can cost anywhere from $1,300 to over $4,600 annually, depending on the vehicle and coverage. The cost may outweigh the benefit if you never use it or only use it once. This is especially true for cars with a strong record of reliability.
2. Limited Coverage
Extended warranties don’t cover everything. Most plans exclude:
- Wear-and-tear parts (like brake pads, tires, or spark plugs)
- Regular maintenance (such as oil changes or filters)
- Damage caused by missed maintenance or improper repairs
- Pre-existing issues that started before the contract began
So, before you buy, it’s essential to read the fine print and understand precisely what services are or aren’t covered.
3. Limited Time and Mileage
Extended warranties only cover your vehicle for a limited time or mileage, whichever comes first.
For example, a two-year, 24,000-mile plan added to a 3-year, 36,000-mile factory warranty only gives you five years or 60,000 miles of total coverage.
4. Frustrating Claims Process
Some drivers report difficulties when trying to use their extended warranty. Common issues include:
- Claims denied because of unclear wording or loopholes
- Delays in getting repairs approved
- Restrictions on where you can get your car fixed
This can be especially common with warranty plans sold by third-party companies.
5. Low Usage Rate
Studies have found that while 47% of car owners purchase extended warranties, only one in 10 use their coverage. Among those who do, many end up paying more in premiums than they receive in repair benefits.
When an Extended Warranty Might Be Worth It
Extended warranties are often useful for high-mileage vehicles or cars you plan to keep well beyond the original factory warranty. That said, you may want to consider buying one if:
- Your car is known for costly repairs or uses complex components that are expensive to replace (makes like Land Rover, BMW, etc.)
- You don’t have savings set aside to cover a major repair.
- You’re offered a contract with clear terms, strong coverage, and no repair shop restrictions.
- You want added services like towing or rental coverage as part of the package.
When It’s Better to Skip It
You can likely skip the extended warranty if:
- Your car is known for being reliable and is still covered by the factory warranty.
- You plan to trade in or sell the vehicle within a few years.
- You have savings or funds set aside for emergency repairs.
- The plan is sold by a provider with unclear terms or a limited network of repair shops.
- You’ve read the contract and found too many exclusions or vague coverage details.
PRO TIP: Instead of buying a warranty, consider setting aside $1,000 to $4,000 in a repair fund. You can also look into mechanical breakdown insurance or vehicle protection plans, which offer more flexible coverage for specific repairs or maintenance.