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Extended Warranties on Used Cars: Understanding Dealer vs. Third-Party Options

BY: Adam Karner
Man driving through the countryside

In challenging economic times, many drivers prioritize saving money. However, the high cost of car repairs makes it difficult to maintain vehicles without breaking the bank. Unfortunately, buying a new vehicle backed by the original factory warranty is out of the question for many drivers, with new car prices at all-time highs.

Buying a used car is often more economical, but it doesn’t have the guaranteed protection of a factory warranty. Buying an extended warranty on a used car is a great option to help you protect your investment.

However, which warranty is right for you? It can be a difficult decision to make when you can buy a warranty through the dealership or with a third party. When purchasing an extended warranty for a used car, it is vital to understand the differences between dealer and third-party options.

What Is an Extended Car Warranty?

New cars typically come with a manufacturer’s warranty, giving new car owners peace of mind and assurances that, in return for the new car price, their vehicle should last for years, and if it doesn’t, they’ll fix it. A new car warranty is comprehensive, often called a “bumper-to-bumper warranty” because the automaker agrees to repair anything that breaks between the two bumpers.

Unfortunately, this vehicle guarantee does not last for the vehicle’s lifetime and eventually expires. Although the term length varies based on the manufacturer, most last for three years or 36,000 miles, whichever comes first. Once the new car warranty expires, car owners must pay for expensive car repairs out of pocket.

An extended warranty can be beneficial once the original contract expires, especially when buying a used car. Even after extensive vehicle research, inspections, and test drives, there is still an underlying risk of unforeseen mechanical problems. As a vehicle ages, parts wear out, making mechanical breakdowns inevitable. An extended car warranty can keep your used vehicle running smoothly, protecting your investment and keeping you safe. But what exactly is an extended vehicle warranty?

Definition of an Extended Warranty

An extended warranty, more accurately known as a vehicle service contract (VSC) or auto protection plan, protects your vehicle after the original manufacturer warranty expires. Available from car manufacturers and third-party warranty providers, these service agreements are contracts between a car owner and the provider stating that in return for a monthly payment and routine maintenance, the provider will assume financial responsibility for agreed-upon repairs in the event of a mechanical failure.

Although it is similar to car insurance, the two are different. While car insurance companies cover the cost of repairs in the event of an accident, they typically won’t pay for parts that naturally break. Alternatively, extended warranty companies can step in and cover those repair costs when your vehicle breaks down but do not cover parts that break in an accident. Having both a car insurance contract and a car warranty provides the maximum protection for any vehicle and driver.

How an Extended Warranty Works for a Used Car

Recent studies show that most Americans cannot afford unexpected vehicle repair bills. With more than half of the population living paycheck to paycheck, expensive car repairs just don’t fit into the budget. However, the new car price tag to get bumper-to-bumper coverage isn’t feasible, either. For many, budgeting for a used vehicle with a low monthly payment for a warranty is a good idea. It can be easier financially than the time missed from work without reliable transportation and the added repair expenses.

With a warranty, when something goes wrong, you can expect to take it to a repair shop for parts repair or replacement and be back on the road without the price tag. Ultimately, a car extended warranty offers vehicle protection and can keep you from paying out-of-pocket for unexpected and costly car repairs.

When purchasing an extended auto warranty, you have two options: buying from a dealership or a third-party provider. Each has advantages and disadvantages, so it’s essential to consider the best fit for your needs and budget. Take the time to research and compare different coverage plans and car warranty companies before making a decision. This will ensure you get the best coverage and value for your money.

Extended Vehicle Warranties from a Dealership

When you buy a car, dealerships offer extended auto warranties that take effect when the original contract expires. These types of warranties are manufacturer-backed and designed to cover any vehicle production defects. However, remember that these warranties are not as comprehensive and usually do not cover damages caused by regular wear and tear. You can purchase this limited extended coverage from authorized dealers associated with your automaker. We’ll explore some of the pros and cons.

Benefits of Dealer-Offered Coverage

When considering the pros of dealership warranties, it is important to carefully evaluate whether this option is the best fit for you and your specific needs. Dealership warranties offer several advantages that may make them an attractive choice.

  • Peace of Mind: Purchasing a vehicle is a significant investment, and having a warranty from the dealership can provide reassurance that potential issues or repairs will be covered. This can alleviate concerns about unexpected expenses and provide security, knowing the dealership will take care of any necessary repairs.
  • Dealership Reputation: Dealership warranties typically come with the expertise and reputation of the dealership itself. Dealerships have trained technicians who are familiar with the specific make and model of the vehicle, ensuring that repairs are done correctly and efficiently.
  • Convenience: If a repair is needed, owners can take their vehicle to the dealership where they purchased it and resolve the issue. This saves time and effort compared to finding and vetting an independent repair shop.

Drawbacks of Dealer Warranties

When considering purchasing a dealership warranty, it is essential to evaluate the potential disadvantages of this decision carefully. While dealership warranties offer peace of mind and protection, they may also have drawbacks, such as:

  • Higher Cost: One major disadvantage of dealership warranties is their cost. These warranties can often be quite expensive, adding a significant amount to the overall purchase price of the vehicle. Additionally, the cost of dealership warranties tends to increase with the age and mileage of the car, making them even more expensive for used vehicles.
  • Inflated Interest Rate: By agreeing to an extended warranty proposal from a dealership, the cost of the warranty may be added to your usual monthly car payment. Consequently, you will end up paying interest on both the warranty and the vehicle, ultimately increasing the overall expense of your purchase.
  • Limited Coverage: Dealership warranties often come with specific limitations and exclusions. It’s crucial to thoroughly review the terms and conditions to understand what is covered and what is not. Some warranties may restrict certain parts or only cover specific types of repairs.
  • Limited Repair Locations: Dealership warranties restrict you to authorized repair facilities within their network. This limitation can be inconvenient if you prefer to have your vehicle serviced at a different location or if you are traveling and need repairs away from your usual service area.
  • Transferability: Some dealership warranties may not be transferable if you sell your vehicle before the warranty period ends. This lack of transferability can reduce the resale value of your vehicle, as potential buyers may prefer cars with transferable warranties.
  • Additional Fees: A dealership warranty may involve hidden charges and unnecessary extras. Although you can haggle with the salesperson, these fees are typically fixed and not as easily adjustable as a third-party warranty plan.
  • Limited Duration: Dealership warranties generally have limited term lengths and may expire after a certain time or mileage limit. Once the warranty period ends, you will be responsible for any repairs or maintenance costs. If you intend to keep the car for an extended period, a longer warranty or alternative coverage options may be more suitable.
  • Poor Return on Investment: Extended warranties from car dealerships go into effect immediately, so you might have to start paying for the contract even before you need it. Depending on how long the warranty lasts, it may expire before you require any repairs.
  • Dealership Specific: Dealership warranties are tied to the dealership itself. If the dealership goes out of business or changes ownership, the contract may become void or difficult to honor.

Third-Party Extended Warranties for Used Cars

Man and woman driving a car in natureIf you want added peace of mind and vehicle protection, consider exploring extended warranty plan options from third-party warranty companies like Endurance, Olive, or CARCHEX. These companies often offer coverage for a broader range of makes, models, and model years, meaning more drivers can benefit. The unique plan offerings and additional benefits exceed what you’d typically find with dealership warranties.

Benefits of Third-Party Extended Car Warranties

When deciding to purchase an auto protection plan, it is essential to consider the numerous benefits that come with choosing an independent provider. These providers offer a range of advantages that can significantly enhance your ownership experience.

  • Broader Coverage: While dealerships are limited to covering their own makes and models and a limited number of model years, third-party providers don’t have the same restrictions. Independent vehicle service contracts offer vehicle protection for more drivers and their vehicles, including older vehicles, high mileage cars, high-end luxury vehicles, cars with salvage or rebuilt titles, Canadian grey market vehicles, and even those used for work, like delivery or rideshare.
  • Competitive Pricing: Third-party providers often have lower overhead costs and fewer manufacturer restrictions, allowing them to offer more affordable auto protection plans without compromising quality. Choosing an independent provider can save you a significant amount of money in car warranty costs and car repairs, especially if you plan to keep your vehicle for an extended period.
  • Additional Savings: Third-party car warranties offer comprehensive coverage for years, affordable monthly payments, and no hidden fees, making them an attractive option that helps drivers avoid unexpected and costly repairs.
  • Customizable Plans: Car warranty providers offer customizable plans based on needs. Drivers can save money by only choosing to cover what they need, deductibles, term lengths, and more. Plans range from basic drivetrain coverage to more comprehensive plans. Third-party warranties offer customizable coverage options, from major repairs to routine maintenance. This flexibility ensures tailored coverage.
  • Bonus Benefits: When opting for coverage from a third-party provider, your repair bills are taken care of, and you also gain access to additional perks. These include 24/7 roadside assistance, rental car benefits, complimentary towing service, and trip interruption assistance. Endurance Warranty covers your repairs and other associated expenses in case of a vehicle breakdown. With Endurance Elite Benefits, you can even enjoy a year’s worth of key fob replacements, tire repair or replacement, and other perks for a nominal activation fee, maximizing your savings.
  • Repair Shop Flexibility: You can access a broader range of authorized auto repair shops by choosing a third-party warranty. This is especially useful if you live far from a dealership, as it guarantees that your vehicle will be cared for no matter where you are. You can take your car to any reputable ASE Certified mechanic, repair shop, or dealership to make getting back on the road easier and more convenient.
  • Transferability: Most third-party providers offer transferable extended car warranties. If you’re looking to boost the value of your vehicle before selling it or giving it to a loved one, transferring the extended warranty is a smart move. Doing so could increase the amount of money you receive from the sale. Plus, the new owner or recipient of the car will have peace of mind knowing they are covered by the transferred warranty, avoiding the need to purchase a new one. It’s a win-win situation that can benefit everyone involved.
  • Smooth Claims Process: Independent providers generally have smoother and more transparent claims processes. They strive to provide excellent customer service and make the claims experience as hassle-free as possible. This means you can expect quicker response times, straightforward procedures, and efficient resolution of any issues that may arise.

Drawbacks of Third-Party Warranties

When considering an extended auto warranty from a third-party provider, it’s essential to consider both the benefits and the drawbacks. While these plans can offer coverage at a lower cost than dealership warranties, they may also have limitations on what they cover and what repairs are eligible.

  • Usefulness: While such warranties can be a lifesaver for expensive repairs, they can also cost you more money in the long run if you never need them. Keep in mind that if you’re paying $60 per month for such a warranty, that adds up to $720 per year, which is minor compared to an engine replacement. However, before you decide to invest in an extended car warranty, make sure to weigh the costs and benefits. If you have a reliable vehicle, it may not be worth the expense.
  • Wait Time: Plans often have a waiting period, typically 30 days and 1,000 miles, before becoming effective, especially for older or high-mileage vehicles. This waiting period is usually in the form of a 30-day money-back guarantee and is used to ensure customers have the right plan for their lifestyle.
  • Deductibles & Fees: Consumers can select from various levels of protection, which can differ significantly depending on the price they pay. Typically, an upfront deposit is required, followed by monthly payments. Deductibles are also a point of consideration, although manufacturer-backed plans usually do not include them. Third-party providers may have deductibles ranging from $50 to a few hundred dollars. It is important to note that some deductibles are “per visit,” while others are “per repair.” If the latter, a deductible may need to be paid for each part repaired, even if it is on the same day.
  • Exclusions & Limitations: Third-party providers can offer inclusionary plans or exclusionary plans. Inclusionary plans are less expensive but are limited only to the parts listed in the agreement. Exclusionary plans are much more comprehensive, covering everything except what is listed in the contract.

It is common for auto protection plans to have exclusions and limitations. Some consumers forget to read the details in the fine print of their extended warranty and are caught off-guard when their car repair is not covered. Reputable warranty providers will transparently list the exclusions on their plans, and it is wise to read that list of what the warranty covers before purchasing an extended car warranty.

Key Differences between Dealer and Third-Party Warranties

Comparing the pros and cons of the dealership-offered extended vehicle warranty and the vehicle service contracts offered by third-party providers can help you choose the best extended car warranty for you.

  • Coverage: Unlike the limited choices a dealership offers, independent providers often offer customizable plans that fit a wide array of makes, models, model years, budgets, and driving styles. These plans also include benefits beyond the basic factory warranty, protecting you from unexpected repairs and breakdowns. These extended coverage options can include roadside assistance, rental car reimbursement, and even wear and tear parts coverage. This ensures protection against a wide range of potential issues that may arise during the ownership of your vehicle.
  • Cost: Third-party warranty providers can offer more affordable auto protection plans with the same quality of coverage as dealerships due to their independent operation and lower overhead costs.
  • Flexibility: Another advantage of purchasing an auto protection plan with an independent provider is the flexibility in terms of coverage duration. Dealership plans typically have fixed terms and limited mileage options, whereas independent providers often offer more flexible plans that can be tailored to match your driving habits and ownership plans. Whether you need short-term coverage or a long-term extended warranty, an independent provider can offer the right plan for you.
  • Claims Process: Third-party providers often have a reputation for excellent customer service. Unlike dealership plans, which are often handled by third-party administrators, independent providers handle all aspects of the plan themselves. This means you can expect personalized assistance, quick and efficient claims processing, and a higher level of customer satisfaction.

How to Choose the Right Option for You

When choosing a warranty for your used car, there are several considerations to keep in mind:

  • Budget: Determine how much you want to spend on an extended warranty. Compare the costs of dealership and third-party warranties to find the option that fits your budget.
  • Coverage Needs: Assess your specific coverage needs. Consider factors such as the age and mileage of your vehicle, as well as any known issues or potential risks. Look for a warranty that will cover repairs for the parts and systems that are most likely to be needed.
  • Trustworthiness of Provider: Research the reputation and reliability of the warranty provider. Read customer reviews and ratings to get an idea of their customer service and claims process. Look for a provider with a good track record and is known for honoring their warranty agreements.
  • Plan Customization: Consider whether you prefer a warranty that offers customizable plans. Some third-party providers offer the flexibility to tailor your coverage to your specific needs, allowing you to choose the level of protection that suits you best.
  • Additional Benefits: Look for any other benefits or perks offered by the warranty provider. These include roadside assistance, rental car reimbursement, and trip interruption coverage. These extras can add value to your warranty and enhance your ownership experience.

8 Questions to Ask Your Extended Warranty Provider

Researching and gathering the necessary information is important to decide which extended car warranty option is best for you. When evaluating extended car warranty options, here are some important questions to ask:

  1. What is the coverage offered by the warranty? Does it cover major repairs, routine maintenance, or both? Are wear and tear parts included?
  2. What is the duration of the warranty? How long will it last, and how many miles are covered?
  3. What are the specific limitations and exclusions of the warranty? Are there any restrictions on certain parts or types of repairs?
  4. Is the warranty transferable if you decide to sell your vehicle? Will it increase the resale value of your car?
  5. What is the cost of the warranty? How much will you have to pay upfront and in monthly payments? Are there any additional fees or deductibles?
  6. What additional benefits are included with the warranty? Does it offer roadside assistance, rental car benefits, or other perks?
  7. Can you choose your repair shop, or are you limited to authorized repair facilities? Is there flexibility in where you can get your vehicle serviced?
  8. How is the claims process handled? Is it simple and transparent? What is the reputation of the warranty provider for customer service?

Tips for Negotiating an Extended Car Warranty

Couple planning on phone the route in a carRemember, negotiating to get the best deal on an extended car warranty is similar to any other negotiation process. Be prepared, do your research, and be willing to advocate for yourself to get the best deal possible. Here are some tips to help you in the negotiation process:

  • Research and Compare: Before entering into negotiations, it’s important to research and compare different warranty providers. Find reputable third-party providers and compare their coverage options, prices, and customer reviews. This will give you a better understanding of what is available in the market and help you make an informed decision.
  • Understand Your Needs: Determine what coverage you need for your specific vehicle. Consider factors such as the age, mileage, and condition of your car, as well as your driving habits. This will help you identify the level of coverage you require and avoid paying for unnecessary features.
  • Get Multiple Quotes: Contact different warranty providers and request quotes for the needed coverage. Multiple selections will give you leverage during negotiations and allow you to compare prices and terms.
  • Negotiate the Price: Once you have received quotes from different providers, you can start negotiating the price. Be prepared to negotiate, and don’t hesitate to ask for a better deal. Highlight any lower quotes you have received from other providers and see if they are willing to match or beat those prices.
  • Review the Terms and Conditions: Carefully review the terms and conditions of the warranty contract. Pay attention to the coverage details, exclusions, deductibles, and additional fees. Ensure you fully understand what is covered and what is not before finalizing the deal.
  • Ask for Additional Benefits: In addition to the warranty coverage, inquire about any additional benefits or perks the provider may offer. This could include services like roadside assistance, rental car reimbursement, or trip interruption coverage. These extras can add value to the warranty and make it more appealing.
  • Be Prepared to Walk Away: If you are unsatisfied with the negotiation outcome or feel the terms are unfavorable, be prepared to walk away. Many warranty providers are available, and you should not feel pressured to accept a deal that does not meet your needs or budget.

Get a FREE Quote on Auto Protection

Mechanical breakdowns are inevitable. It isn’t a matter of if it will happen, but when. An extended car warranty or vehicle service contract gives you a financial safety net when disaster strikes.

When you buy an extended warranty for a used car, thoroughly understanding the differences between dealer and third-party companies is crucial. Considering costs, coverage, reputation, flexibility, and convenience will enable car owners to make an informed decision that best suits their needs, maximize the benefits, and provide peace of mind for future repairs and expenses.

Experience our award-winning customer service firsthand and contact our dedicated team at (800) 253-8203 or request a FREE quote online. For immediate pricing, visit our online store and shop with absolute confidence. We’ll help you find the best car protection plan for your needs and budget.

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