Should You Buy an Extended Warranty on New Cars?

At some point in the new car buying process, your dealer is likely to ask you if you want to buy an extended warranty. Also called an auto service contract or a vehicle protection plan, these products provide coverage after the manufacturer’s original warranty runs out, typically for about three to eight years. Dealerships often sell these warranties under their own brand names and with special marketing, such as Honda Care or Ford Protect, or they may work with third-party providers. They usually cost money up front, but the costs can be rolled into your financing.

Many consumer advocacy organizations, such as Consumer Reports, recommend that buyers skip extended warranties entirely. They argue that these policies tend to have a lot of gotchas and can be difficult to understand or use. For example, a warranty plan might require you to pay a deductible on each repair visit or on each service contract year. Some of these plans may even exclude preventive maintenance, such as oil changes. A financial guru named Dave Ramsey suggests setting aside an emergency repair fund instead.

An extended warranty might make sense for some buyers, however. A reputable extended-warranty company will clearly explain what is and isn’t covered. Most of these contracts cover components such as the engine, transmission and drivetrain for a long period of time. Alternatively, some companies offer bumper-to-bumper warranties for a shorter term of time.

If you decide to purchase a warranty, look for one that is as close in terms of terms and conditions to the original manufacturer’s policy as possible. This will increase your odds of having a good experience. A reputable warranty provider will also be licensed and insured. You should also keep a log of your own maintenance activities, such as oil changes, to decrease the likelihood that you’ll be denied a claim later on.

Unless you’re an ace negotiator, it’s probably best to skip the extended warranty as part of your new car deal and shop for it on your own later. Then you can compare prices and shop for the best coverage from a variety of providers.

A reputable extended warranty company should have a high customer rating and a low Better Business Bureau complaint record, as well as a clear understanding of what is and isn’t covered. You should also look for a warranty plan that has a good reputation for paying claims in a timely manner. Some of these warranties, such as those offered by CarShield, are backed financially by a number of companies, including American Auto Shield, Royal Administration Services and Allegiance Administrators, which makes them more reliable than others. extended warranty on new car