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What is an extended warranty?

All new cars come with original warranty provided by a car manufacturer. This original warranty covers most of the vehicle components for a certain period - most commonly, three years or 36,000 miles. After the original warranty expires, you will have to pay for all repairs out of your pocket. This is when an extended warranty may be helpful. An extended warranty is basically a service contract between the car owner and the warranty company. According to this contract, the warranty company will pay for the repairs covered by the contract for a specific period of time. It's something like health insurance for your car. With an extended warranty you are protecting yourself from unexpected repair costs.
For instance, you bought a used car that is out of original warranty and the transmission fails. If you don't have an extended warranty you will have to pay for the repair, and this may cost you as much as a couple thousand dollars. If you had a good extended warranty, it would cover most of the repair costs - in some cases you would only have to pay a diagnostic fee, or a deductible, depending on the type of warranty you have.
However, not all cars are qualified for an extended warranty and not everything is covered. Wearable items like belts, brake pads and tires are usually not covered. Also, you still have to maintain your car properly and keep all the receipts.
There are two major types of auto extended warranties - ones provided by car manufacturers and the others that are backed by third party companies, also called aftermarket extended warranties. The manufacturer's extended warranty can be bought from an authorized dealer and it works similar to an original warranty, where for any repair you have to take your car to a dealer and they perform any covered repairs.
With an aftermarket warranty, depending on the policy, you have to take your car either to a dealer or a certified repair facility. They call your extended warranty company (administrator) for an authorization and if the part is covered, the extended warranty administrator authorizes the repair and the repair facility performs the necessary repairs. Some companies like, for example, Warranty Direct will pay directly to the repair facility, others may require you to pay the repair bill and then wait for reimbursement.

Do I need an extended warranty for my car?

To decide whether you need an extended warranty or not, you should look closely at your situation and your car. Here are some key questions you should ask yourself:
For how long are you going to keep your car after the original warranty expires? - You don't need an extended warranty if you have a new car and you are planning to trade it in before, or right after the original warranty expires. But if you want to keep your vehicle for a few more years - an extended warranty is worth considering.
Do you have any other warranty coverage? - You don't need duplicate coverage for your car. Find out what coverage you already have. For example, if you bought a used car from an authorized dealer under "Certified Pre-owned" program, you may already have some warranty coverage that comes with the car.
Are you prepared to handle any unexpected repairs? - If you don't know much about cars, if you don't have a good trusted mechanic, if you prefer to pay for a sense of security and don't like to have unexpected expenses, a good extended warranty is what you need. When your car needs a repair, take it to a dealer or an authorized repair shop and show them your extended warranty contract - if the repair is covered, your extended warranty will take care of that.
How reliable is your car? - Research your car reliability history. Some cars are known for their reliability - Toyota Corolla and Honda Civic are two good examples. The more reliable your car is, the less likely it will have unexpected problems. For example, a friend of mine has spent only about 600 dollars over five years on his ten-years old Toyota Corolla for repairs other than regular maintenance. If your car is known for high reliability and you maintain it well, it's less likely that you will benefit from an extended warranty, although it's a fact that all cars break sometimes even most reliable ones.
What options does your car have? - The more options, the more can go wrong. Cars become more and more complex these days and use more and more sophisticated electronics. Things like power windows, central locking, ABS, heated seats, immobilizer, traction control are on the list of available equipment of nearly any new car now. Almost every minivan now offers options like power sliding doors, dual air conditioning, tire pressure monitoring and DVD entertainment system. SUVs are also stuffed with things like four-wheel drive system, vehicle stability control, navigation system, etc. Todays luxury cars are more like space ships with long list of high-tech gadgets. While it's good to have more options in your car, they significantly increase the average cost of repair. A simple thing like a faulty seat heater can cost you several hundred dollars to fix. The point is, the more features your car has, the more chances something will break, making more sense to have a good extended warranty coverage.
How expensive are parts for your car? - Parts (and labor) for some cars tend to be more expensive. Examples are: Volkswagen, Audi, Volvo, BMW, Lexus, Infiniti, Mercedes-Benz, Jaguar, Acura, Lincoln, Cadillac to name a few. Do some research on your particular model. Ask your mechanic, read reviews. Definitely consider a good extended warranty if you have this type of car.
However, you won't necessarily save money with an extended warranty. If your car won't have any problem during extended warranty coverage period, you'll loose money you paid for your coverage. I think it's more about peace of mind than saving money. You are paying for the sense of security, protecting yourself from unexpected repair expenses. Another benefit of having an extended warranty is that when your car has a problem you can take it to a dealer where usually you can expect better level of service than in a small independent garage. Also consider that some extended warranties provide additional benefits like towing, lost key/lockout, and car rental discounts.

What to look for choosing an Extended Warranty

There are number of things you should check about any particular extended warranty before signing a contract. First thing you need to know is who is the warranty administrator, the company that will authorize and pay your repair claims - is this a reputable company?
- Do some research on the particular extended warranty company; you want to deal with reliable company that won't disappear in few years. Try to find out how long this company has been in business, ask friends, ask your mechanic, check BBB report and other sources.
- Review the actual extended warranty contract before signing. Beware when they refuse to give you a copy of a contract for review before signing it - don't deal with this types of companies.
- How the claims are handled, how the company authorizes the repair? - do they send an adjuster to inspect the car, which usually takes more time or do they trust the repair facility? Also, some extended warranty providers require you to pay the repair bills and then send them the repair bill and wait for reimbursement. Other companies will pay directly to the repair facility, so you don't have to spend your money - definitely, it's more convenient.
- Do you have to pay deductible? - Some contracts may offer zero deductible, others may require you to pay a certain deductible amount, and it could be per visit or per repair.
- Where do you have to take your car for repairs? - Can you take your car to the repair facility of your choice or only to the dealer who sold you the car?
- What are the maintenance requirements? - some companies may require you to follow maintenance schedule for severe conditions or have some other unreasonable requirements.
- Check what is covered and what is not, you may want to consult with your mechanic or a dealer what coverage you need for your car. Are problems caused by wear and tear covered? Many problems with your car can be caused by wear and tear but some warranties may only offer coverage for problems caused by mechanical breakdown which is not always the case.
- Is the policy transferable? - If you have an extended warranty that is transferable, it will be a very good selling point if you decide to sell your car.
- Call the garage where you are planning to service your car; or if you don't have a particular place in mind, call few local dealers or repair shops and ask if they will honor an extended warranty from this particular company. If they have had bad experience with this company, they may refuse to work with them.

When should I buy an extended warranty coverage?

You don't have to buy an extended warranty at the day when you are buying your new car. You can buy it sometimes later, but the tendency is that the cost of coverage grows up as the car gets older. This means that if you buy an extended warranty earlier it may cost you less. One of the reasons is that auto repair rates are constantly increasing.

Where to buy an Extended Warranty?

As I already mentioned before, there are two major types of an extended warranty: manufacturer's backed extended warranty and aftermarket or third-party extended warranty. Manufacturer's extended warranty is easier to use, but tends to be more expensive. If you are looking for manufacturers extended warranty, you can check manufacturer's website for more information (They may call it differently, for example, Toyota calls it "Vehicle Service Agreement" Ford calls it "Extended Service Plan" Honda calls it "Honda Care vehicle service contract", GM calls it "Protection Plan"). Manufacturers extended warranty are sold through authorized dealers and often you can find that different dealers offer different prices for the same coverage, so, shop around.
Aftermarket warranties are sold through car dealers, banks and other organizations. Some warranties are also sold directly through the internet, meaning that you can buy directly from a warranty provider without paying dealer's mark-up.
Not all aftermarket companies offer same level of service and protection.
One of the most often mentioned extended warranty sold online is the WarrantyDirect. The WarrantyDirect has a good reputation, they have been in business more than 25 years, they have nearly 2 million contracts sold and they are insured by an "A" rated A.M Best insurance company. In addition, the WarrantyDirect has very small amount of BBB claims. You can get an instant free online extended warranty quote at their website, follow this link: