What is an Extended Warranty?

New vehicles typically come with a standard warranty from the manufacturer, but for some people that coverage isn't enough. Either the warranty doesn't last long enough, or it doesn't cover enough parts. For those people, it makes sense to consider getting an extended warranty.

An Extended Warranty?

Extended warranties are offered through car dealerships or third party sellers, and functions like a service agreement. The buyer is given a set of terms and protections they can enjoy from the warranty, and over the life of that warranty, it helps to pay for repairs or other services.

Obtaining an Extended Warranty

If an extended warranty sounds like a useful purchase, there are a few different ways that it can be obtained. The first is by acquiring it at the time of purchase. The second is to call the dealership and have it added at a later date. This is usually fine, as long as the manufacturer's warranty is still in effect. The last option is to work with a third-party company to purchase an extended warranty and, in some cases, such warranties may even be available after the manufacturer's warranty has expired.

A Dealership Warranty

The most common type of extended warranty is a dealership warranty. These agreements cost a bit more money, but they do offer additional protection for your vehicle. Usually these warranties have to be purchased while the car is still covered by the manufacturer warranty, and won't provide coverage until the original warranty expires. At this point, the car is protected by the extended warranty as detailed in the warranty document.

Drawbacks of a dealership extended warranty may include:

  • A higher net loan amount for the buyer unless the warranty is purchased separately from the car.
  • May only allow the use of select service facilities.
  • Might not be backed by the vehicle manufacturer.

Third-Party Warranties

It's not necessary to work with a dealership in order to secure an extended warranty. Instead, warranties can be obtained from a third-party seller. These agreements still come with all the major benefits of a dealership warranty. The nice thing about these warranties is that you can buy them at any time. They are available whether the manufacturer warranty is still good or not, though the rate is significantly lower if it is still active.

These warranties usually come in different tier levels, with the lowest cost packages offering the fewest benefits for the shortest time. It's common to see this graduated structure cleverly named as in "Bronze, Silver, Gold, Platinum and Titanium." It's up to you to look at the offerings at each level and decide if they are worth the expense.

Obtaining an extended warranty isn't the right move for everyone, but for buyers that are really concerned about vehicle protection, these agreements often make sense. They add life to manufacturer coverage, and are particularly helpful in used vehicles with limited warranty time left. Consider what coverage is available to you, and only pick it up if the protection is worth the money asked. For your protection, be certain to read all the warranty details before making a purchase. Some warranties are more comprehensive than others, and it would be a mistake to assume anything when it comes to warranty terms and considerations.