Should I Buy an Extended Warranty On a Used Car?

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Jul 13, 2021

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What You Should Know

  • Not all used cars come with their own original warranty
  • You can purchase an extended warranty for your used car from car dealers and auto insurance companies
  • How you use your pre owned car and how much repair is needed will allow you to determine the type and value of your extended warranty

There are many benefits of buying a used car, especially if you land a great deal—that is, if you know how to negotiate used car price and know what to check when buying a used car. This includes making sure that everything is fully operational before putting any money down. 

But despite the benefits of purchasing a previously owned vehicle, there’s also a reason used cars are usually cheaper: they have higher mileage and potential mechanical problems that aren’t immediately obvious.

An extended auto warranty can save you on any car repair down the line, but for an upfront cost. It protects the car after the manufacturer warranty has already expired, providing some peace of mind for longer. While an extended warranty doesn’t cover general wear and tear or routine maintenance, it usually covers mechanical problems like engine failure or a faulty transmission.1

It’s not the right choice for every used car owner—is it for you? We’ll cover the ins and outs of purchasing extended warranty coverage to help you make an informed decision.

Pros: Extended Warranties Give Used Car Owners Peace of Mind & Potential Savings

The biggest bonus of extended coverage is that you feel better protected from any costly unexpected repairs and emergencies. You pay an upfront, predetermined monthly, or yearly fee, and, in exchange, you know exactly what is and isn’t covered down the line. 

It’s much easier to budget properly when you pay a fixed rate rather than trying to predict the costs of potential emergency repairs. And if you end up needing it for a costly fix, it’ll be worth the small sum you spent. However, the peace of mind it brings may not be worth the price tag for most drivers.

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Con: Extended Warranties are Overpriced & Don’t Usually Pay Off

Like all insurance policies, an extended auto warranty is only worth it if you end up using it. Naturally, it’s impossible to predict which used cars will or won’t need a covered repair, but the data suggests that it’s more often the latter:2

  • 55% of extended warranty holders never used their coverage. The median price for their purchased policies was $1,200 with $0 in savings.
  • Of the 45%  who used their warranty’s coverage, the median driver saved $837 on repairs. These users paid an average upfront cost of $1,214, meaning they lost an average of about $375.

This gap in savings also has to do with the fact that extended warranties don’t cover every repair issue. By and large, extended warranties are much more lucrative for the insurance companies that sell them than for the drivers who buy them. Still, for some used car owners, it may be a sound decision.

Should You Buy an Extended Warranty on a Used Car?

The value of an extended warranty plan is directly tied to the likelihood of a defect with the car. This all comes down to the specifics of the vehicle as well as the individual driving it. 

Here are a few questions to ask yourself when determining the right choice for yourself:

  • Does my used car come with remaining manufacturer warranty? If so, there’s no reason to purchase an extended warranty plan, or at least not until the original warranty coverage lapses. You don’t even know whether you’ll still have the vehicle when that time comes.
  • What is the likelihood that I’ll need significant repairs? This is extremely tricky to predict, but a bit of research can go a long way in making an educated guess. Read reviews and forums to find any recurring problems with your make and model. For example, if every used 2003 Mazda MPV needs a new transmission after 50,000 miles and you bought yours with 42,000, you may want to consider an extended warranty.
  • How do you plan to use your car? The more you plan to drive over a short time, the more you might need repairs, the more you’ll benefit from extended warranty coverage. If your used car is an older make and model with serious mileage already, this may increase your likelihood of needing significant repairs.
  • What’s your current financial situation? This refers specifically to your ability to budget for sudden expenses in the future. If you struggle to amass a significant amount of emergency savings, you might be better off making a recurring monthly payment towards your coverage instead.

The most important step in ensuring sound decision-making is understanding your car and the likelihood of an incident. When you know all the variables, it’s much easier to determine what coverage is needed and the price you should pay for it.

Where Should I Buy Extended Warranty on Used Cars, If I Decide To?

There are two places to buy an extended warranty, each with its own benefits and drawbacks: 

  • Through the car dealership or car dealer when you purchase your used car – These manufacturer-backed warranties differ based on the car’s make, model, and age. They’re usually fairly reliable and can help significantly in the face of an expensive repair for an often-used car part.
  • Through an independent lender or insurance company – Third-party warranties are often less costly but with more limitations on where you can take your vehicle for repairs, more coverage options to decide between, and a more complex disbursement process. A third party car warranty company may require an out-of-pocket payment and a claim filed with later reimbursement. 

For many used car owners, purchasing a third-party warranty may be the only available option. Be sure to read the fine print to determine exactly what your warranty includes.

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Compare Rates Easily With 4AutoInsurance

Regardless of whether or not you decide to purchase an extended warranty, you’ll undoubtedly need an automotive insurance policy for your used (but new to you) vehicle. 

4AutoInsuranceQuote has you covered by matching you with the most affordable rates in the industry. We’ll help you find the best prices for standard liability insurance, plus add-ons like collision, comprehensive coverage, and gap insurance for your used car.If you’re looking to find the cheapest auto insurance available, you’re only a click away.

References:

  1. The Balance. What Is an Extended Auto Warranty?  https://www.thebalance.com/what-is-an-extended-warranty-4777305
  2. Consumer Reports. Extended Car Warranties: An Expensive Gamble. https://www.consumerreports.org/extended-warranties/extended-car-warranties-an-expensive-gamble/

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