You don’t have to buy an extended warranty when taking out an auto loan, and you shouldn’t feel pressured to do so. Whether or not you should get it depends on your risk tolerance and financial situation.
If you’re nervous about paying for repairs that standard car insurance won’t cover, and you can afford the extra cost of an extended warranty—averaging roughly $1,000 per year—it could be worth it. Otherwise, you may prefer to save for car repairs on your own.
Key Takeaways
- Manufacturer’s warranties usually come with new car purchases, but extended warranties can be added for an additional cost.
- Warranties can protect against mechanical failures that aren’t covered by typical car insurance.
- An extended warranty often isn’t worth it from a cost vs. benefit perspective, but it depends on your situation.
What Does a Warranty Do?
A car warranty provides a guarantee that vehicle parts will function properly for a given amount of time or mileage, otherwise the manufacturer or a third party must cover the cost of repairs or replacements. However, warranties won’t cover everything that can happen to your vehicle. Things like normal wear and tear as well as accidents are typically excluded, whereas manufacturing defects are generally covered.
Some cars come with a manufacturer’s warranty, which is included with the purchase of the vehicle and can’t be separated. Extended warranties, however, go beyond what standard manufacturer warranties cover, and they can be sold by third parties like car dealerships. These extended warranties are always optional.
Why a Warranty Is(n’t) Worth It
A comprehensive manufacturer’s warranty can make buying a car more palatable, as you can then worry less about the cost of unexpected repairs. However, paying extra for an extended warranty is harder to justify.
Car dealers may try to sell you on an extended warranty. As with all insurance-like products, some buyers will end up needing the extra protection and will be thankful they have it. But for the most part, the seller comes out ahead.
That said, if you don’t feel confident you can save for repairs on your own, or you wish to avoid the stress of something going wrong with your vehicle, you might prefer to buy an extended warranty.
If foregoing an extended warranty, consider putting the money it would’ve cost into a high-yield savings account instead. That emergency fund can cover whatever insurance doesn’t, and if you end up not needing to use it, you’ll have extra savings for a rainy day or different purchase.
The Bottom Line
A manufacturer’s warranty is included with the purchase of a vehicle. That’s a benefit that’s worth comparing between different vehicles to help you evaluate risk. But when it comes to buying an extended warranty, the extra expense might not be worth it. You’ll likely be better off saving for miscellaneous car repair and replacements on your own.
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