The quick answer is this: An extended warranty is protection that you purchase after the original manufacturing warranty period has expired. In most cases, you can buy it at any moment before the manufacturing warranty expires. Extended warranties are available from the manufacturer or a third-party company, and both can be purchased at a dealership. A service contract is another name for it.
Before we go any further, let’s clarify a few points. On each of these points, there is more information below.
You are NOT required to purchase an extended warranty when you purchase the vehicle.
To qualify for financing, you SHOULD NOT need an extended warranty.
You should probably avoid purchasing an extended warranty. That’s right, you read it accurately.
It’s critical to know what kind of warranty you’re purchasing and who is responsible for administering it. Just because you’re offered a warranty at a Ford or Toyota dealership when you buy a car doesn’t imply it’s endorsed by Ford or Toyota.
Determine the carrier and conduct some research to determine how pleased customers are with the claims process.
You should also check to see if the warranty will be honored at the dealer or mechanic where you intend to service the car, as well as if it will cover a large network of other dealers in the area.
What good is an extended warranty if your car breaks down and there are no participating mechanics for the tow truck to take it to?
There is little consistency in what an extended warranty covers, especially if it claims to be “bumper-to-bumper.” You should read the terms attentively.
Fortunately, most warranties spell out everything that isn’t covered; if it’s not on the list of exclusions, it’s protected. The bottom line is to read everything thoroughly.
Then there’s the hazy math of determining whether or not an extended warranty will save you money. We use the term “fuzzy” because you never know what might go wrong outside of the warranty period.
It’s a cross between purchasing insurance and gambling. Running the statistics here to assess the value proposition will be nearly impossible for most casual buyers.
This is partly due to the relatively high reliability of current automobiles. Many vehicles do not require major repairs that are not connected to recalls during their service life.
Extended warranties won’t assist with the cost of “consumables,” which are items like tires, brake pads and rotors, and certain pricey exhaust components that just wear out over time.
Not a rare catastrophic engine or gearbox breakdown, but these are the costs that most automobile owners will have to account for.
Another short point: we’ve heard of dealers pressuring car purchasers to purchase extended warranties as a condition of financing. This is, for lack of a better term, a con.
Before signing any documents, find out who the lender is who is providing the finance. They’ll virtually definitely dismiss your claim. If they insist on an extended warranty as a condition of lending you money, choose another lender.
Consumer Reports and other prominent consumer advocacy organizations strongly advise consumers not to bother with extended warranties at all. “Extended warranties can have several gotchas,” according to Consumer Reports, “relying on contract fine print to refuse coverage for nearly any reason.” They advocate setting aside money for unforeseen repairs after the warranty term has expired, as your bank account will not refuse coverage. There are no exceptions.
In this case, we tend to agree with Consumer Reports. There are many unknowns when it comes to extended warranties, but one thing is certain: you’ll be paying a lot of money for a benefit that is either difficult to understand or difficult to obtain. And is unlikely to be required.
If you have your heart set on a car that has a horrible record for breaking down just after the warranty period expires, and you’re comfortable with warranty legal jargon, an extended warranty might be the way to go.
You’ll want one that matches your original warranty’s terms as closely as possible, preferably from the car’s manufacturer rather than a third party – a true extended warranty.
So, how about that service agreement? An extended warranty is known by this technical term. Warranties are included in the purchase price at the time of purchase, and a service contract is any additional coverage purchased to cover a period of time after the initial warranty expires. It’s merely a different, more precise method of saying the same thing.