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Is an Extended Car Warranty Worth the Cost?

Much depends on your ability to pay for a major repair and the status of the original warranty

stressed man man leans over open hood of car checking engine after breaking down on the road

E+ / Getty Images

En español | You may have been getting calls lately about your extended car warranty. Of course, you don't have one, so the caller is all but certainly a scammer. But there are such things as legitimate extended car warranties and you can buy them. If you have a tight budget and an unreliable car, a warranty might be worth the money. In many cases, however, you can do without one.

What are extended car warranties?

First of all, extended warranties are service contracts, not warranties as defined by law, according to the Federal Trade Commission (FTC). A warranty comes with the car, offers a promise to fix certain defects during the warranty period, and is included in the sales price. A service contract simply lists the things that the other party will fix, what you'll pay for the contract, and other fees.

Your first job is to see whether your car's warranty will cover the same things as the service contract does. In addition to the traditional three-year bumper-to-bumper warranty, which covers most things on a vehicle, most new cars also have a power train warranty that covers the car's transmission, engine and drivetrain. Typically, a power train warranty lasts longer than a bumper-to-bumper warranty. Hyundai and Mitsubishi, for example, offer 10-year/100,000 power train warranties; Cadillac offers a six-year/70,000 power train warranty.

If you're buying a used car, the car may still have a manufacturer's warranty. You can find out by looking at the buyer's guide posted on a side window. If the car still has the manufacturer's warranty, you don't need the service contract.

If the car is being sold “as is,” meaning the seller makes no promises and won't fix anything that breaks, you may need an extended warranty. The same is true for so-called implied warranties, the unwritten promise that if you buy a used car, you expect it to run instead of bursting into flames. Implied warranties also mean that if you bought the car for a specific purpose, such as towing a trailer, you shouldn't expect the trailer to fly into the bushes when you hit the cloverleaf on Route 128. Many states do have “lemon laws,” which may give you some added protection in the event you get stuck with a defective vehicle.

What do extended warranties cover?

Next, you need to know what's covered by an extended warranty. Parts that are usually replaced routinely because of normal wear and tear, such as brake pads, tires and clutches, are usually not covered. Other questions to ask:

  • Who will be doing the repairs? If I break down 1,000 miles from home, will there be a nearby mechanic or dealer who will honor the warranty?
  • Is there a toll-free number I can call when my car breaks down? Does someone actually answer?
  • Will the repairs be made with new or reconditioned parts?
  • Is there a deductible? If I get a $1,500 repair bill, how much of that will I have to pay? And is there an overall limit to how much the company will pay in a year?
  • How long does the extended warranty last?
  • Does the company backing the extended warranty have any complaints against it with the Better Business Bureau

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How much does an extended warranty cost?

Finally, there's the matter of cost. The average extended warranty costs $1,500, but some can cost as much a $3,000, according to WalletHub, a personal finance website. The cost depends on the company issuing the warranty and the make and condition of your car.

Car warranties can be worth the cost if you have a vehicle that's not reliable and your budget is too tight to afford a new car or cover a costly major repair. Replacing a transmission usually runs between $1,800 and $3,400, according to Transmissionrepaircostguide.com. A new rear differential, which determines how fast each wheel spins, will cost $1,500 to $4,000. If you don't have that in emergency savings, you're faced with charging the bill on a credit card or walking to work.

For others, an extended warranty is redundant, because they are already covered by a manufacturer's warranty — or they have enough savings in hand to make the repair. In that case, an extended warranty isn't worth the cost.

What to do if someone calls about your extended car warranty

"Hi there, this is Shasta calling in regards to your Volkswagen warranty. The warranty is up for renewal. I'd like to congratulate you on your $1,000 instant rebate and free maintenance and oil change package for being a loyal customer. Call me back at 888-206-XXXX to redeem now. Once again, that number was 888-206-XXXX. Thank you so much. Have a great day.”

—Transcript of an warranty callback scam, courtesy of the FCC

You've probably gotten several calls, usually recorded, from a person who has been trying to reach you about your extended car warranty. What should you do?

Hang up. Block the number, if you can. It's a scam.

That's it. It may be tempting to talk to the scammer and read a list of random numbers for a credit card or pretend to run down to the drugstore to buy $2,000 worth of Amazon gift cards. Don't do that. Don't call back.

Why? Even pressing a button will let the scammer know that he has reached a real phone number, and that's valuable to him. You'll simply get more scam calls. Just hang up. If you think you have received a fraudulent call, file a complaint with the FTC

Can You Spot an Extended Car Warranty Scam?

How to find a legitimate extended car warranty

Extended car warranties are sold by auto manufacturers, dealers, some insurers and independent companies that specialize in extended warranties. Unfortunately, there does not seem to be a trade association for the industry that endorses a set of best practices for the consumer.

First, eliminate any companies that sell by unsolicited, high-power phone or internet ads. They may well be scams.

Now it's time to look for endorsements by third-party organizations. Make sure the organizations are not compensated for their endorsements, something you can often find in the “about” tab on their websites. A few places to check: Car TalkMoney.com and MarketWatch.

To eliminate real clunkers, check the Better Business Bureau for complaints about the company.

John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.

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