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What Is a Car Warranty?
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Bankrate.com describes a car warranty as a contract provided by the vehicle’s manufacturer or a third party that guarantees the repair or replacement of certain components that fail due to design or installation defects within a specified time- frame. In essence, car warranties cover specific repairs that are not covered by your standard insurance policy. However, in the case where the car warranty pays for the car parts, typically maintenance, normal wear and tear, and anything resulting from customer neglect are not covered.
Types of Car Warranties
Let’s review the basics of the different types of car warranties. Understanding the finer points of each will help you determine if a car warranty is necessary or not for you. Here are the main types of car warranties:
- Manufacturer’s Warranty – Comes with a new car and typically covers bumper-to-bumper repairs for 3 to 5 years or 36,000 to 60,000 miles.
- Powertrain Warranty – Covers major components like the engine, transmission, and drivetrain, usually lasting 5 to 10 years or 60,000 to 100,000 miles.
- Extended Warranty (Vehicle Service Contract) – Purchased separately from the manufacturer or a third party to extend coverage beyond the original factory warranty.
- Bumper-to-Bumper Warranty – Covers nearly all mechanical and electrical failures but typically excludes wear-and-tear parts like brakes and tires.
- Corrosion/Rust Warranty – Covers damage from rust, often lasting 5 to 12 years depending on the manufacturer.
Did you know that there are so many kinds of car warranties? This is why it is helpful to understand each type and determine whether additional coverage is necessary for your vehicles
The Pros of Having a Car Warranty
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Additionally, having a car warranty can be helpful in terms of maintaining the longevity of your automobile. A car warranty can offer peace of mind in terms of future potentially costly car component replacements that are not covered by the manufacturer’s warranty. Some people think of a car warranty like insurance; you may never need it but in the case of an accident, theft, or damage, depending on the warranty type, you may have coverage and not have to come out of pocket for costly parts.
Protection Against Expensive Repairs
Today’s vehicles are much more advanced than those even from twenty years ago, before the acceleration of AI. Automobiles today have complex electronics, sensors, and computer systems, and in the case of hybrids, an internal combustion engine with an electric motor. All of these can lead to expensive repairs not only due to the parts but also the systems and mechanical upgrades required to fix them. This excludes the cost of labor which continues to increase with inflation which is why a manufacturer’s warranty is critical. The extended warranty can save thousands on major repairs after the manufacturer’s warranty has expired.
Below are common issues that sometimes occur during the lifetime of car ownership:
- Transmission replacement – $3,000 to $7,000
- Engine rebuild – $4,000 to $10,000
- Fuel pump replacement – $600 to $1,000
- AC system repair – $1,500 to $4,000
The sample ranges above are for economy vehicles; luxury vehicle costs can increase exponentially depending on the brand. In these cases, it may make sense to invest in a bumper-to-bumper comprehensive warranty that covers everything from the initial purchase.
Peace of Mind
For these reasons above, a warranty, whether powertrain, extended, corrosion, or comprehensive can be helpful when unexpected or emergency repairs are needed for basic automotive functionality. If a major repair is required that is not covered by the manufacturer’s warranty, the driver will have to face the possibility of paying out of pocket for repairs, which in some cases, can lead to delayed service maintenance. This can put the vehicle in further jeopardy and subject to future extensive damages. However, those with a warranty can have peace of mind knowing that these costs can be largely covered depending on the type of warranty leaving reduced out-of-pocket expenses.
Transferability Can Boost Resale Value
Another benefit of having an auto warranty is that in most circumstances manufacturer and third-party warranties are transferable to a new owner. Therefore, a pre-owned vehicle can demand higher pricing than a vehicle without warranty coverage
The Downsides of Car Warranties
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Even with all the benefits previously listed about auto warranties, warranties are not always the best financial decision for consumers.
Cost vs. Actual Use
In general, extended warranties range between $1,500 and $4,000 which may sound reasonable when broken down monthly. However, this cost is a loss if employed infrequently or never utilized at all. If you have a vehicle that has minimum repairs and regularly scheduled maintenance per the manufacturer’s specifications, you may not need any repairs during the warranty period.
A Consumer Reports survey reported 55% of people who purchased an extended warranty never used it at all! Of those who did use the warranty, 45% saved an average of $837—which is a loss considering the yearly warranty cost.
Limited Coverage and Exclusions
As previously noted, most warranties are not all-inclusive. Items that might be excluded include:
- Routine maintenance (oil changes, tire rotations, brake pads)
- Wear-and-tear components (batteries, wiper blades, tires)
- Damage caused by accidents, neglect, or modifications
If you decide to purchase a warranty, it is important that you be an educated consumer and aware of the restrictions and requirements for the warranty to be approved. This is critical as some warranties also have limitations on the specific service centers that can be used or limit reimbursement amounts.
Potential for Denied Claims
An issue with extended warranties is denied claims. Some providers have a reputation for finding legal ways to evade paying for repairs. This is especially common when dealing with third-party providers.
Some situations of denied claims include:
- Claims associated with pre-existing conditions
- Maintenance not upheld per the manufacturer’s specifications
- Non-approved repair shops
In addition to reading the fine print in the agreement, it is also helpful for you to read reviews about the warranty company and evaluate the warranty type. Check the Better Business Bureau (BBB) and even your state’s Attorney General’s office to ensure the warranty company is reputable.
Manufacturer Warranty vs. Extended Warranty: Which One Is Better?
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When comparing a manufacturer warranty versus an extended warranty, we recommend a manufacturer warranty.
Why Manufacturer Warranties Are Better
- Manufacturer warranties have no additional cost as they are included with the new car purchase.
- Repairs are performed at authorized dealerships with OEM (original equipment manufacturer) parts.
- Statistically there are fewer disputes with a manufacturer warranty than with an extended warranty.
When an Extended Warranty Might Be Worth It
An extended warranty may be a good choice if:
- You are purchasing a used vehicle with expensive repair risks.
- You plan to keep your car for 10+ years.
- Your car has known reliability issues (check sources like J.D. Power or Consumer Reports).
- The warranty provider has a strong reputation for honoring claims.
Alternative Ways to Protect Yourself Without a Warranty
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If you are uncertain if a car warranty is worth the investment, you can employ other strategies to safeguard yourself from unexpected costly repairs.
Building an Emergency Repair Fund
Decide to save money monthly so you are prepared for any costly repairs. We recommend setting aside $50-$100 per month specifically for car repairs as a car is the 2nd biggest life purchase after a home. Let the funds in the account accrue and only withdraw in case of an auto repair emergency.
Choosing a Reliable Car
Even if you are not a car enthusiast, certain auto brands are known for their reliability. Purchasing a Toyota, Honda, or Subaru for example, reduces the likelihood or the number of unexpected repairs.
Performing Regular Maintenance
Extend the life of your car by performing routine oil changes, brake inspections, tire rotations, and fluid replacements in alignment with the manufacturers’ specifications. Proper maintenance and following the manufacturer’s instructions for car care can extend the life and performance of your vehicle.
Final Verdict: Are Car Warranties Worth It?
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The answer to this question depends on several factors including driving habits, financial situation, and risk tolerance.
- If you have a reliable vehicle, perform regular maintenance, and can afford unexpected repairs, an extended warranty may be unnecessary.
- If you drive a luxury or high-maintenance car with expensive repairs, a warranty could save you money in the long term.
- Due diligence when considering extended warranties is highly recommended in addition to thoroughly examine the company, warranty type, term, and coverage.
TL;DR – Key Takeaways
- Manufacturer warranties are included in new cars and usually offer better coverage than extended warranties.
- Extended warranties can be expensive, and 45% surveyed did not use them enough to justify the cost.
- Routine maintenance, wear-and-tear parts, poor maintenance, and pre-existing conditions are frequently excluded from warranties.
- Claim denial is commonplace with extended warranties, which is why we encourage thorough research before purchasing.
- An emergency repair fund and choosing a reliable car can put you in a position to protect your investment for the future
The choice is yours – you can choose the best warranty for your car based on its condition and your finances. Or you can decide to forgo a warranty in lieu of purchasing a reliable automobile and preparing financially for future repairs down the road. We encourage you to be an educated and informed consumer and make the right decision for your car. Either way, you are making an investment, so choose wisely.
