UPDATED: October 13, 2022

Extended warranties can be an excellent way to protect yourself financially if something happens to your car. However, they can also be a waste of money if you don't end up using them. So, is an extended auto warranty a sound financial decision? 

Before you go and look for the best extended warranty company, here's what you need to know.

What is an Extended Car Warranty?

An extended car warranty, also known as an optional vehicle service contract, is offered by manufacturers, dealerships, and independent providers. These warranties come at an extra cost above the purchase price. This is to cover the cost to repair or replace particular parts for a specific period or a number of miles. The period or the number of miles is usually beyond what is usually covered by the car manufacturer's warranty. 

When you buy a new car, most dealers offer you an extended auto warranty besides the standard service contract. Often, however, you may get a service agreement at any time before your warranty expires.

How Does an Extended Car Warranty Work?

If you've ever owned a vehicle, you know that automobile issues can sometimes be more complex than what your manufacturer's warranty covers. Sometimes, car problems can continue long after the original contract expires. These lengthy repairs put you on the hook to pay out of pocket for these procedures. 

This is when an extended automobile warranty comes in handy. These service agreements are created to cover the costs of repairs that go beyond the manufacturer's guarantee.

Let's say you purchase a new electric automobile with a three-year manufacturer's warranty. You also choose to get an extended vehicle coverage due to the car's sophisticated electrical system. The onboard computer in your automobile malfunctions in the third year, but your manufacturer's warranty does not cover repairs of this sort. Fortunately, your extended automobile warranty will cover it. This potentially saves you hundreds of dollars in repair expenses.

What are the Pros and Cons of Obtaining an Extended Car Warranty?

Getting an extended car warranty has its pros and cons. To help you decide, let's take a look at some of them.

Pros

1. You can drive your car for a more extended period without having to pay for costly repairs.

2. Your car is protected against repair bills and replacement costs. Even if you don't end up using your extended warranty, this is still a great benefit as it can save you hundreds or even thousands of dollars over the life of your loan.

3. You're better protected if your car is stolen or totaled in an accident.

4. You have the option to select the coverage that matters more to you.

5. You have the option to choose between a deductible and no deductible.

Cons

1. The likelihood of needing repair work covered by an extended service contract is slim, especially on a newer model vehicle with fewer miles and fewer problems.

2. The cost of an extended warranty is often more than what the repairs would end up costing, even if your car required significant work.

3. If you don't keep the car long enough, you may not receive a good return on your investment in the service contract and, therefore, lose money. 

4. You pay for a service contract and never end up using it.

5. There's always a chance that you'll have trouble getting the company to pay for repairs if you do need them, as they may claim that your car is not covered or that there was something wrong with the product when it failed, even though they sold you an extended warranty on it.

Extended warranties also do not cover pre-existing ailments, and waiting periods are put in place to verify that your automobile is running well before your warranty begins. This implies that extended warranties don't cover your car for the first 30 days or 1000 kilometers after purchase. So, if you're expecting your auto warranty to go into effect the moment your vehicle breaks down, you might be disappointed.

As you can see, extended car warranties have their pros and cons. Whether or not they're worth it ultimately comes down to your situation and the personal financial risk you may be willing to take regarding your vehicle.

Is Getting an Extended Car Warranty Worth It?

When you buy an extended car warranty or service contract, you are essentially paying for the peace of mind that your car will receive repairs should something go wrong. If you've ever had to spend hundreds or even thousands of dollars to repair a major part of your automobile, then this can sound like a great idea.

The problem with these types of coverage is that most people do not use them because their cars continue to perform without requiring factory or dealer repairs.

Customers, who are unaware of the possibility of avoiding costly car repairs may find themselves paying more money than they need to for coverage they won't use, which is why so many people ask, “is an extended auto warranty a sound financial decision?”

The answer to this question depends on the individual and how likely they think their car will need significant repairs during the warranty period. If you don't know much about cars, talking with a trusted mechanic can help you learn whether your vehicle will likely encounter significant problems during the warranty period.

Alternatively, if you have a reliable car that you have no reason to believe will need repairs, an extended warranty might not be worth your money.

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