When an Extended Car Warranty is Worth It — and When it's Not

If you have a car, you're probably getting flooded with calls, emails and letters telling you that your car needs an extended warranty. A lot of these are scams, but extended warranties themselves are real and sometimes useful.

While you might be reluctant to pay the added cost, some of these sales materials can make it sound pretty scary to drive without one. But, if you don't check the fine print and make sure to choose a reputable warranty underwriter, you could end up paying for coverage that doesn't quite live up to your expectations.

How do extended warranties work? Do you really need one? What should you consider if you are going to buy one? Get the details you need to know below.

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How do extended warranties work with new cars?

When buying a new car, you might be offered an "extended" or "wrap-around" warranty. Whether it's worth it depends on what the standard warranty already included with your new car covers.

This varies by make and model, but typically a standard warranty lasts about three to five years or 36,000-60,000 miles. In terms of what they do, there are a few things to understand before signing:

• Normal wear and tear is never covered. All warranties only cover defects or damage that aren't considered normal wear and tear. So, something like worn-out brake pads will be on you to replace.
• Covered components: Some warranties might be "comprehensive" or "bumper-to-bumper," meaning all parts and systems are covered. Others might apply to specific systems like the powertrain, infotainment system or battery.
• Owner responsibilities: Often, warranties come with the condition that you keep up with routine maintenance like oil changes and tune-ups. If you fall behind, the warranty could be voided.
• Exclusions: Even if a certain system is included, some specific components of it might be excluded, or there might be certain situations in which they'll be excluded. Read through these exclusions carefully.
• Upgrades can lead to denied claims. If you take it to a shop after the fact to modify it in any way, dealerships may claim the upgrade caused the defect and deny your claim. Something as simple as swapping the tires or installing a hardwired dash cam may be enough to cause problems
• "Abnormal use" won't be covered. Even if you have a car made for off-roading, your warranty may not cover damage that happens if you actually take it off-road. In some cases, doing anything more than normal street driving could void the entire warranty.

An extended warranty, meanwhile, would work the same as your standard. The difference is it either includes things that are excluded from your standard warranty or that it extends the time that your vehicle is covered.

How do extended warranties work with used cars?

Unlike a new car, buying a used car usually doesn't come with a warranty. One exception to that is a certified pre-owned car, which is certified by the dealer to meet certain standards and will sometimes come with an extended warranty to back that up.

For the most part, used car warranties work the same way. But there are a couple of unique features that you might find:

• Waiting periods. Sometimes, used car warranties won't kick in right away. Instead, they take effect 30 to 90 days after purchase. The waiting period might instead be a mileage, like 1,000 miles.
• Preexisting conditions. Any issue that existed before the warranty was purchased is often excluded. If you bought the warranty when you bought the car, it can be hard to appeal a claim that's denied as a preexisting condition.

Is it worth it to get an extended warranty on a car?

The answer depends on your risk tolerance. When buying a new car, you already have a standard warranty included in the price, so you can at least wait until that one is near its expiration to explore your options.

For used cars, the answer is trickier because it depends on the condition and maintenance history of the car you bought. For a certified pre-owned car that came with an extended warranty, go ahead and use the warranty if you can.

If trying to get a claim approved turns out to be a huge headache, it might not be worth the money to buy another extended warranty when that one expires.

Reasons to not buy an extended warranty

Some reasons you might opt not to get the extended warranty include:

• You had bad experiences trying to get repairs covered under the original warranty that came with your car.
• You've made modifications to your car that would either void a warranty or render it pretty much useless.
• You've done the routine maintenance on the car yourself, so you don't have official records documenting its maintenance history.
• You do a lot of off-roading, hauling or other things with your car that a warranty underwriter could deem "abnormal."
• You'd just prefer to handle repairs without the stress of a claims process.

Extended warranty vs emergency fund

Depending on whether the car is used or new, an extended warranty can range from about $1,000 to $3,000 for a coverage period lasting three to five years (or a certain mileage).

Would you be better off forking over that cash for a warranty or stashing it in a savings account to pay for repairs as needed over that time frame?

The good news is you aren't stuck with one decision or the other. As mentioned, you can hold off on deciding about that extended warranty until your existing warranty is about to expire. While you're waiting, go ahead and keep the cash you'd spend on it in a savings account so it can earn interest while you weigh your options.

Mistakes to avoid when buying an extended car warranty

If you would feel more comfortable having that extended warranty, there are some important steps to take to make sure you're getting a fair price and paying for a warranty that is actually usable.

Here are some of the biggest mistakes car buyers make when buying extended warranties:

• Forgetting to negotiate the price. The price you're offered isn't set in stone. Start by offering to pay half (or even less) than the price you're initially quoted and negotiate from there.
• Not vetting the company. You'll get plenty of ads, phone calls and emails offering you an extended car warranty. But they aren't all created equal. You need to buy one from a reputable source, like your car's manufacturer, a local bank or an auto club like AAA.
• Getting pressured into buying an extended warranty right away. At the dealership, the salesman might put a lot of pressure on you to add that warranty right then. Just take your car home, do some research, and compare prices and options from multiple reputable companies. Your dealer's offer might be the best one, but you might end up scoring a better deal elsewhere.

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