Fuzzy Math: Should You Buy an Extended Warranty For Your New Car?

When shopping for a new car, many consumers consider buying an extended warranty to cover repairs and other expenses. However, not everyone needs an extended warranty, and there are important factors to keep in mind before purchasing one.

Manufacturers typically build warranties into the cost of a new vehicle, covering certain problems for a specified timeframe or number of miles. After a car’s initial factory warranty expires, buyers can purchase an extended warranty to cover some or all repair costs. These extended warranties — sometimes called service contracts or bumper-to-bumper warranties, but more accurately known as “warranties of indemnity” — often come with a variety of terms and coverage levels. Some are backed by the dealership, some are marketed by independent companies and some may include extras like roadside assistance.

Fuzzy math: How much will the warranty save you?

The cost of an extended warranty varies widely, depending on the car’s predicted reliability and other factors. And since warranty companies are not regulated the way insurance companies are, they can charge whatever they want. A recent survey reported the median price of an extended warranty was $2,458, and prices ranged from $1,615 to $3,208. It’s important to do your research and find out exactly what each plan covers, including its warranty length, the specific parts it covers and whether any exclusions apply. For example, some plans only cover maintenance, but not replacements of worn-out parts. If you aren’t sure if something is covered, ask the dealership or warranty company to clarify.

A car’s owner’s manual should provide you with an overview of the manufacturer’s warranty and a list of the components included in the extended warranty, if there is one. You can also get an idea of what’s covered by looking at the dealer’s website or reading online reviews for the particular warranty you’re considering. You’ll want to learn if the warranty is backed by the dealership, manufacturer or an independent company, and who handles claims. Some warranties require that dealers or mechanics be part of a network to qualify for reimbursement, while others may not cover mileage-based repairs at all.

You should also look at the car’s record and its history of reliability. Many new car shoppers rank a vehicle’s reliability high on their priority list, so it’s important to know how long the vehicle is expected to last and what kind of repair costs it’s likely to incur in its lifespan. If you’re comfortable with the reliability of a vehicle, it might make sense to skip an extended warranty and instead put the money into savings for potential repairs in the future. It’s also worth noting that you can usually cancel most warranties within a few days if you don’t like them. That might be helpful if you’re feeling buyer’s remorse or have any other concerns about the policy. new car extended warranty