An extended warranty, also called a vehicle service contract or a car protection plan, is offered by companies that specialize in providing automobile repair coverage. These plans, which vary in price and terms, may provide a range of services including mechanical repairs, roadside assistance, rental car reimbursement, trip interruption coverage and more. They can be purchased in advance, paid through a monthly payment plan or rolled into the cost of your car’s financing plan. In recent years, a growing number of automakers have begun offering their own extended warranties. These warranties can be cheaper than third-party options and are backed by the car’s manufacturer, which provides customer service should any problems occur.
A car extended warranty can help you save money on expensive auto repairs, and some of these warranties cover wear items such as tires and wipers. In general, however, these warranties do not cover the entire cost of a vehicle’s repairs or replacement parts and often include depreciation clauses that reduce what’s paid for a repair based on your vehicle’s mileage. If you decide to buy an extended warranty, research the company that’s providing it to make sure it has a good track record of paying out claims and does not have hidden fees in its contracts.
You should also find out whether your local dealership’s service department will honor the warranty you’re considering buying, as not all dealerships will accept extended warranties from all providers. Additionally, you should find out how long the warranty lasts (measured in years and/or miles) as well as if it has specific service requirements such as only being allowed to use certain authorized repair shops. Finally, it’s worth finding out if the warranty can be canceled later on, as this can be a way to avoid overpaying for something you might never end up using.
Many shoppers find themselves being hassled by dealerships to buy extended warranties, and some lenders may even require that you purchase an extended warranty as a condition of obtaining their financing. This is generally a red flag and should be a deal-breaker if it happens to you. Instead of spending your money on a warranty, consider saving that money and investing it in a rainy day fund for when your car needs costly repairs or maintenance.
A recent Consumer Reports member survey found that 55 percent of people who bought extended warranties didn’t use them for repairs. While the added peace of mind of a warranty can be helpful, it is important to weigh the pros and cons carefully. A better option might be to put the money you’d have spent on a warranty into a savings account for emergency auto repairs, especially since a car repair savings account can also earn interest over time.