Image of a man driving a car with an extended warranty.

Understanding Extended Warranties

Updated August 2, 2018 . AmFam Team

Are you considering a used car with more than a few miles on it? Does your bumper to bumper warranty expire in a few weeks? Take a look at these helpful tips to understand if an extended car warranty is right for you.

Buying a used car can be a gamble. Miles add up, repairs can get costly. And if you need to replace your transmission, you’re looking at dropping a few thousand dollars just to get back on the road again. So what’s to be done? Getting up to speed on extended warranties can help you better protect your investment.

What Is an Extended Car Warranty?

In a nutshell, an extended warranty is an insurance policy that covers the repair or replacement costs of car problems with a flat-fee deductible. Many dealerships fold the cost of the warranty into the financing. Take a look at some of the benefits and risks that come with the purchase of an extended car warranty and decide if having one is for you.

Extended warranties are offered by both manufacturers and third parties, and come in a few different options:

Bumper to bumper warranties. These are also called “exclusionary warranties,” and most new car purchases will offer this for a limited period of time or given amount of miles. This warranty offers comprehensive coverage for defects and repairs but typically does not cover scheduled maintenance, like replacing wiper blades and getting oil changes, which are listed as exclusions. Warranties of this type are typically offered by car manufacturers.

Powertrain/Drivetrain warranties. As the name implies, this coverage is limited to the engine, transmission, differential and other mechanical aspects of the car. New car purchases will carry this coverage forward after the bumper to bumper expires. These can extend coverage to 100,000 miles, or 10 years and sometimes beyond. Third parties also offer this warranty for an additional cost on used cars.

Corrosion/Rust warranties. Typically not purchased separately or offered by third parties on older used cars, these warranties are usually delivered with new or certified pre-owned vehicles as a protection for the paint job on the car.

Service bulletin or secret warranties. Consider this the hidden gem of car warranties, like an under-the-radar manufacturer’s recall. They’re called secret because car makers don’t go public with these warranties. So, if your power steering starts to fail, or your head gasket begins to leak oil, get online and search for your year, make and model + “service bulletin.” If you find one resembling your car’s symptoms, print out that bulletin and present it to the dealer’s service department when you bring the car in. They may or may not honor it, but at least you’ve increased the odds of getting the problem repaired for free.

When to Get an Extended Warranty

Buying a new car has obvious benefits, but drawbacks like the instant 10% loss of value that occurs as soon as you drive it off the lot can weigh heavily on many consumer’s minds. At least a used car will potentially retain most of its value in the short term. Still on the fence about the right way to go? Take a look at our piece on determining which type of car is right for you to help with the decision. Either way, an extended warranty is worth considering.

Here are a few things to keep in mind when you’re contemplating an extended warranty for a used car:

Look at reliability. You may not need to get an extended warranty on a car that’s got a history of being very reliable. Look at online reviews and car rating services like Kelly Blue Book (Opens in a new tab) and Edmunds (Opens in a new tab) to get a prediction of reliability and overall value of a car.

Get the facts. Is the car already under warranty? Some used car dealers will sell certified pre-owned vehicles that carry a powertrain warranty that’s almost identical in terms and conditions to an extended warranty policy. Don’t spend the money if you’re already covered.

Weigh the risk. Consider the unknowns about the vehicle. A good rule of thumb is this: The less you know about the car, the more you want to insulate yourself from financial loss. If the car’s been in a few accidents, changed hands a number of times, or if it looks like it has seen better days, that might be reason enough to justify the expense.

Buyer beware. Some less-than-savory car dealers will “mandate” that financing is only available with the purchase of their warranty. Before signing, call the financing group and verify the details. Consider shopping with a more reputable dealership if this turns out to be false.

You make the call. This one may be last, but it’s important. You should know that direct-to-consumer car warranty groups like Endurance and quote aggregators like CarChex can frequently provide better, more affordable coverage than plans offered at dealerships. Be sure to shop around and go with the best fit for your needs and budget. Many of these policies can be picked up at any time, given that your car clears an on-site inspection.

Refunds may apply. Suppose you buy a car with a three year extended warranty and after eight months you decide it’s not the car for you. You may be in luck. Some states mandate that these contracts are refundable on a pro-rated basis, meaning you’ll get a check for the unused portion of the warranty if you cancel before it expires.

Buying a new or used car is a big decision. While you’re contemplating the purchase, be sure to check in with your American Family Insurance agent (Opens in a new tab) and refine your policy to meet your specific needs. You’re going to feel great knowing that you’ve got the protection your investment deserves.

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