Extended car warranties come in two flavors, bumper-to-bumper and engine-drivetrain.
Extended Car Warranty: Smart Money or Money Pits
If you are one of those people who aren’t completely satisfied with a 3-year, 36,000-mile warranty or a 5-year, 50,000-mile deal or Kia’s 10-year, 100,000-mile extravaganza, then you are probably going to be interested in an extended car warranty when you buy a new, or new to you (used), vehicle. You can never be too safe right?
Actually, there is some question about the value of an extended car warranty. What we want to do is explain what they are, what they do, what they don’t do. We’ll also provide a short list of popular plans. We won’t make any judgments about extended warranties because there are way too many variables. Hopefully you’ll be able to make a decision based on your own situation.
The Extended Warranty Profile
For starters, extended warranties are not warranties at all. They can be better described as an insurance policy or service contract. Their purpose is to defray the cost of certain repairs after the manufacturer’s warranty has expired. Extended warranties should not be confused with the manufacturer (OEM) warranty. There are significant differences even if you are buying the extended warranty from the dealer.
Extended warranties typically kick in only after your OEM warranty has expired. You can buy an extended warranty at the time of purchase or later. However, in most cases you need to buy the warranty before the OEM warranty expires.
You can purchase an extended warranty from most dealers or from third party providers. As a general rule, OEM warranties will be more expensive because they use OEM parts, the service is performed at the dealer, and they have lower deductibles.
Third party sellers normally work with a network of independent shops and use aftermarket parts. We’ll get into other OEM/third party differences in a moment.
Warranties come in two flavors, bumper-to-bumper and engine-drivetrain. Bumper-to-bumper covers pretty much everything, including expensive electronic parts. The engine-drivetrain is pretty much just the engine and transmission and maybe some seals and gaskets. Either option will often contain a list of specifically covered parts (or excluded parts), so if it is not listed expect it not to be covered.
Read the Fine Print
There are many things to consider when buying an extended car warranty. The first question is, do you really need it. If you do, what exactly are you buying? How does it work? Who pays the shop?
Most of these questions will require some intensive digging through the fine print. Here’s what we mean:
Timing
How long do you plan on keeping the car? Will the OEM warranty still be in effect when you plan to trade it in? If the answer is yes, then you don’t need an extended warranty.
Beware the F&I Manager
If you are buying a new car, the salesperson will sing the praises about the vehicle’s reliability and solid build. When you sit down with the Finance and Interest person to arrange financing, you are likely to hear a different story.
They will regale you with stories of total disaster that happens at 36,001 miles on a 36,000 OEM warranty. You need an extended warranty. And it costs just a few dollars more because it can be rolled in with your car loan.
Surprise, extended warranties are a high profit item for dealers.
Third Party
Before you go this route, triple check the background and reputation of the third party provider. Read the online reviews. Check with the local BBB and your state’s consumer affairs department for complaints.
Deductibles
Unlike the OEM warranty, extended warranties (including those from dealers) come with a deductible. Like car insurance, the higher the deductible, the less expensive the coverage. Know precisely what deductibles apply to what coverage.
Who Pays the Shop
Many third party warranties work like insurance and the shop bills the extended car warranty provider. Some however, require you to pay the bill and then submit a claim for reimbursement. Reimbursement can take months. Make sure you understand how your warranty works.
Popular Third Party Extended Car Warranty Providers
ConsumerAdvocate.org is “trusted” by Yahoo, Forbes, ABC News and other large media organizations. They are like Consumer Reports although they do get ad revenue from some of the people they put in their lists. With that caveat, here are the top 5 third party providers:
Endurance
Provides 24/7 roadside assistance. Covers cars with up to 160,000 miles on them. Multiple deductible plans. 30-day refund policy. Rental car benefit.
Carchex
Provides coverage on cars up to 150,000 miles. 30-day refund policy. Multiple plans and deductibles.
Autopom
California-based but offers coverage in most states. Rental car assistance. A+ BBB rating. Pick your own repair facility.
PMC
Automotive Service Excellence accredited. Online quotes available. Flexible payment terms. 24/7 roadside assistance.
Warranty Direct
25,000 dealers and repair facilities nationwide. No upfront payments. Unlimited claims amount. Multiple payment options.
The Other Side of the Coin (According to Consumer Reports)
We can make this short and sweet. Getting any real value from a dealer’s extended warranty is not likely. The dealer will push hard to sell the product and will try and terrify the new car owner with tales of transmission and engine failures that happen days after the base warranty expires. The truth is, extended warranties are a high profit item that can turn a ridiculously low purchase price for the vehicle into a winner.
Consumer Reports did an extensive study of extended car warranties purchased by 12,000 of its subscribers. What it learned was that 55 percent of the survey never used the coverage.
The median price of an extended car warranty is $1,214. As mentioned, most people never use the coverage. Those who do average a “repair cost savings” hundreds of dollars less than the purchase price. In fact, the average repair cost savings was $837 resulting in a net loss for those who used it of $377.
It’s not surprising that Consumer Reports ranks extended warranties among the lowest in customer satisfaction.
