Is an Extended Warranty Worth It? A Comprehensive Guide

Should you buy an extended warranty for your new vehicle

It’s a dilemma every new and used car buyer faces. You’re sitting with the dealer’s finance person they’re pressuring you to buy an extended warranty “on the spot.” That’s no way to buy an extended warranty for your new car or truck. If you really want one, do your homework first.

So first, let’s talk about whether you need one. Then I’ll walk you through the best kinds to buy and how to buy them.

Do you NEED an extended warranty?

I’ll cut right to the chase on this. With all the computerized gadgets on new cars it’s tempting to think you need an extended warranty. However, if you’re buying a high-quality reputable car or truck, chances are the extended warranty will never pay off.

If you’re buying a not-so-great car, then maybe it’s worth your while. Here’s how to decide whether to buy an extended warranty and which one to buy. Here are a few examples:

When my daughter was a senior in high school, I bought her a brand new Honda Civic and a genuine Honda extended warranty. In fact, I bought a 100,000-mile bumper-to-bumper warranty with a $100 deductible. She drove that car all through college and well into her first job. She sold it at 145,000 miles. Did I get my money’s worth? Let’s see. The ignition’s igniter coil went out one winter. Honda towed it in and replaced it. My cost? $100. The head gasket leaked oil. Honda replaced it. It cost $100. A CV boot broke. Honda replaced it. My cost? $100. What is the moral of the story? The warranty cost me $1,100 and the three repairs added $300 to the total tab–$1,400 in all. How much would all the repairs have cost had I not had a warranty? About $,1500. I consider it a wash. Yes, I had peace of mind, but money-wise, it wasn’t such a good deal.

When I bought my son a Toyota Tercel, I also bought the Toyota extended warranty–$1,100. He sold the car at 125,000 miles and never once had to use the warranty. I came out on the short end. Then I bought another Toyota extended warranty for his 2003 Toyota Rav 4. Yep, never used it. Ouch!

Again, if you buy a dependable car to start with, you don’t NEED an extended warranty. Isn’t that why you bought a dependable car in the first place?

When should you buy a bumper-to-bumper extended warranty?

But what if you’re not buying a dependable car?

So, the answer to whether you need one depends entirely on what vehicle you buy. Don’t go into la-la land on this. Some vehicles are simply more reliable than others. Check Consumer Reports first. If you’re buying a vehicle with a history of repairs because you like its features, then consider the cost of an extended warranty just a part of the vehicle cost.

Which bumper to bumper extended warranty is best?

Car dealers sell extended warranties for one reason—they make a LOT of money on them. If the dealer is selling you an aftermarket (non-OEM manufacturer) warranty, they’re making around 50% profit. If they sell you a genuine OEM manufacturer’s warranty, they only make about 25% profit. Guess which one they’ll push? Bingo. Are the aftermarket warranties any good? Some are really good. MOST are just plain awful.

How to shop for a bumper to bumper  extended warranty

Read the fine print BEFORE you buy

Don’t rely on the salesperson’s description of what the warranty covers because their pitch doesn’t count when it comes time to get your vehicle fixed.  Here are some general rules about reading the fine print on extended warranty contracts:

• The longer the warranty is, the less it covers.

• The best warranties don’t limit the definition of “failure.” The worst warranties limit the word failure to “factory defects.” That means it won’t cover normal wear and tear. If a part is defective from the factory, it will most likely failue during the manufacturer’s warranty. Most failures, later on, are caused by wear and tear. So a warranty that only covers defects is pretty much worthless.

• Does the extended warranty cover diagnostic charges? Crummy warranties don’t pay for the diagnostics UNLESS the tests show that the fault lies in a COVERED part. Here’s an example:

Your car won’t start. The tech attaches scan tool to see if there are any trouble codes. There are none. So he tests fuel pressure and determines you’ve got a bad fuel pump. Yup, the pump is covered and so is the fuel pressure test. But the scan tool charge isn’t covered because there were no trouble codes and that $100 diagnostic fee is coming out of your pocket. This is a crummy warranty.

• Does the extended warranty pay for shop supplies?

You know you’re going to get hit up for shop supplies and it’s usually 10% of the labor. Will the warranty company pay for that? Think about it, if you’re dealing with a major repair where the labor is $1,000, shop supplies can run $100.

• Does the extended warranty pay for NEW parts?

Yes, you read that right. Some weasel warranty companies will force the shop to put in used parts. Some companies refuse to pay the shop’s RETAIL prices for the parts they install. That’ll really honk off your shop. Why should a shop owner agree to repair your car and buy parts for it when the warranty company will only reimburse them for their cost of the parts without markup?

Other weasel warranty companies go out and buy the cheapest parts they can find and deliver them to your shop. Is the part a name brand you can trust? Who pays if the replacement part fails? Who knows?

• Does the warranty cover other damaged parts?

Your water pumps croaks and seizes up. The pulley breaks off and flies into the radiator. A crummy policy will cover just the water pump and leave you holding the bill for a new radiator and belt along with the labor costs for those two items.

• Is the warranty transferrable? Offering the remainder of the extended warranty to a new buyer is a huge selling point. If you’re not going to keep the vehicle until the wheels fall off, make sure you can offer the new buyer the remainder of your warranty.

Is it REALLY a bumper to bumper extended warranty?

Many extended warranties, especially the cheaper versions and those sold for used cars are really just powertrain warranties. They cover only the engine and transmission, but none of the emissions or computer systems—the most common failure items. So these warranties rarely pay off.

Even if you have an engine or powertrain issue, the crummy warranty companies make you jump through hoops to get covered. First, they’re require you to pay for disassembly and diagnostic charges to determine if the failure was caused by a defective or worn part. If the failed part is covered, THEN they’ll ask for receipts for all the maintenance you’ve done–receipts for all oil and transmission fluid changes and they can even demand receipts for the inspections listed in your car owner’s maintenance guide. Don’t have them? Get out the knives because you’re going to have a fight on your hands.

Think you’re covered if the EGR valve or air injection reaction pump fails? Nope. Those components are considered part of the emissions

Electric Air Injection Reaction pump

control system. Same with the expensive catalytic converter and most of the sensors and solenoid valves. They’re all part of the emissions or exhaust system and an extended warranty on a used car usually excludes those components. If you buy a used car extended warranty and really want bumper to bumper coverage, make darned sure the warranty covers emissions systems and computers and sensors.

Does the warranty cover other electronics?

A crummy extended warranty won’t even mention ABS brakes, traction or stability control, climate control, or entertainment or navigation–or it’ll list them in the EXCLUSIONS section. This one is a no-brainer. If you want coverage on those items, the warranty shouldn’t exclude those items.

Does the extended warranty company pay promptly?

I bought an extended warranty from an aftermarket warranty company. They paid all the claims, but only after wrestling them to the ground and demanding they abide by the letter of the contract. They found every excuse in the book to pay less than the dealer charges, claiming that they were not “customary.” Baloney. I had to call the local dealers, get their estimates for the same service, compile a list of those estimates and present it to the warranty company to PROVE the dealer’s charges were “normal and customary.” Plus, I had to threaten to file a complaint with the State Attorney General’s Office.

I won the debate, but it cost me a lot of aggravation. Who wants to put in that kind of effort?

This is just my opinion, but based on that experience I would never buy from that company again. Do you want to fight every claim? I didn’t think so

How do you find a good bumper to bumper extended warranty?

Simple. ASK THE DEALER SERVICE MANAGER or independently owner shop owner which warranty companies they LIKE to do business with. They’ll tell you. And they’ll tell you which companies to avoid. In fact, they keep a blacklist of the warranty companies they won’t accept. But do NOT take the finance person’s word for it. He or she isn’t the one who has to deal with the warranty company’s claims department.

Some extended warranty companies don’t pay on time

The good extended warranty companies pay the shop by immediately issuing a credit card refund to the shop’s account. But other warranty companies insist on paying by check. If the warranty company doesn’t pay, guess who gets stuck paying? YOU. Some shops have had such bad luck that they won’t even deal with the warranty companies anymore. They’ll deal with your extended warranty company, but you’ll have to pay the bill and then wait to get reimbursed. Having fun yet?

Check out the extended warranty company’s reputation

No extended warranty company bats 1,000. You’ll always find complaints online. But the worst companies have far more complaints. Start by checking the Better Business Bureau. Also check the states consumer affairs office. Finally, ASK the service writer at the dealer. They keep a list of “black balled” warranty companies.

Research extended warranty prices before you buy

Always do your homework BEFORE you go to the dealer. Get on-line quotes for factory AND aftermarket warranties. Buying a Chevrolet? Just do a search for Chevrolet OEM warranty. Then fill out the quote forms. You’ll get many responses. Many dealers are happy to sell a genuine factory warranty on-line for 20% off list price. Some will even sell an aftermarket warranty for 40% off list. TAKE those prices with you when you finalize the deal and are sitting in front of the finance person. Show them the quotes. Make them match or come close to those prices.

How to negotiate a lower price on a bumper to bumper extended warranty?

All extended warranty prices are negotiable! All you have to do is object to the price and tell the finance manager you can find a better price from another dealer or online seller.

Then, ask for AARP or AAA discounts. Trust me, the finance manager has plenty of room to negotiate–they just won’t offer the discounts unless you demand them.

Which bumper to bumper extended warranty period to choose?

Remember, the extended warranty only kicks in AFTER the factory warranty expires. So, if you buy the cheapest 60,000 mile warranty, it won’t kick in until after the factory 36,000 mile warranty expires. That’s not a lot of coverage! So you’ll be paying a lot of money to cover you for only 24,000 miles of coverage. If you’re going to keep the vehicle for many years, buy a 100,000 or 120,000 mile warranty.

© 2012 Rick Muscoplat

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