Vehicle Extended Warranties

A vehicle extended warranty, also called a service contract or mechanical breakdown insurance, provides protection for parts that might need repairs beyond the manufacturer’s standard warranties. You can find them offered by manufacturers, auto clubs or independent companies that offer car protection plans. They can range in length, what they cover and price, so it’s important to compare your options.

Extended warranties can reduce financial stress, particularly for owners of cars from manufacturers with unreliable track records or who have reached the end of their original warranties, says Nat Pope, a professor at the University of Michigan. However, he warns that these policies are often “fraught with peril for consumers.” If you’re considering buying one of these contracts — which he prefers to call warranty services rather than extended auto warranties — check to make sure they offer what you need.

Ask the seller what coverages are included, how long the policy lasts (measured in years and/or miles) and if you can transfer the coverage to a new owner when you sell the vehicle. Also, find out if you must pay upfront for the repairs and then get reimbursed or if the repair shops are required to bill the warranty company directly. You also should review a provider’s history of customer service and complaints and note whether there are any cancellation fees or waiting periods before the plan starts.

Some extended warranties require you to pay a deductible in the event of a repair, which can add to your overall cost. Others have a set number of covered repairs, which can quickly deplete the policy’s value. If you’re considering a purchase, find out how much the deductible is and what else is covered, including roadside assistance and towing.

You may need to keep detailed records and receipts of routine maintenance like oil changes to maintain eligibility for reimbursement under some contracts. If you don’t, you could void your coverage and have to pay out-of-pocket for repairs.

If you want to buy an extended warranty, Ramsey recommends building an emergency fund that can help cover repairs when needed. He also advises that you consider creating a budget for your car’s future needs and keeping in mind how much the vehicle might be worth when it comes time to sell. A reliable website, such as Edmunds’, can show you your current car’s values and projected resale or trade-in value.

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