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When you purchase something as expensive as a vehicle, sometimes it’s nice to know that you won’t be on the hook to cover the cost of repairs on components that should last at least a few years before breaking down. This is especially true for a new vehicle.

Considering the cost of car repairs, having a warranty that will cover these expenses can provide you with some reassurance that you won’t be stuck with a bunch of issues that you shouldn’t have to deal with shortly after buying a brand new car.

That’s why manufacturers offer limited warranties on brand new car purchases. But these plans are only for a short period of time – usually between 2 to 5 years. If you want more coverage than that, you’ll have the option to purchase additional coverage in the form of an extended warranty. 

But what is an extended warranty? And are they worth spending more money for?

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What is an Extended Warranty?

An extended warranty is an insurance policy that covers your vehicle in case it is damaged or requires certain repairs that you may not have anticipated to happen so soon. While there are different warranty options, these extended warranties are designed to protect against surprise issues with your car for a certain period of time.

When you buy a new vehicle, it will come with a factory warranty that covers the first few years of the life of the vehicle, or the first few thousand kilometers of driving, whichever of the two comes first. This factory warranty will cover the cost of any repairs that are needed, as long as they are specified in the contract.

But the time frame for this coverage is limited, which is why some people choose to purchase extended warranties for their vehicles to make their coverage last longer.

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What is and Isn’t Included in an Extended Warranty?

The type of coverage you get with your extended warranty will depend on how much more you’re willing to pay. For instance, some extended warranties may only cover the cost of a breakdown. That said, you can expect the following to be covered in most extended warranty plans:

Powertrain warranty – Most basic extended warranty plans cover the cost of the engine, transmission, and driveshaft. Since these components tend to be more prone to breaking down, the warranty that covers them usually lasts longer.

Bumper-to-bumper coverage – Just about everything from the front to back of the vehicle will be covered under both a factory and extended warranty. The manufacturer’s warranty will usually cover anywhere between 3 to 5 years while purchasing an extended warranty will add another couple of years to the coverage.

That said, things such as tires, brake pads, seat belts, headlights, stereo systems, and issues related to regular wear and tear are not usually included in warranties.

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Types of Extended Warranties

When you buy an extended warranty, you’re buying it either from the manufacturer or a third party. For instance, an extended warranty bought from Honda or Mazda will be from the manufacturer directly and can only be purchased at specific dealerships.

Otherwise, you can purchase an extended warranty from a third-party company that is not affiliated with the manufacturer or dealership. These can be applied to both new and used vehicle purchases. When dealing with third parties, however, it’s important to be diligent about who you deal with to ensure the company is legitimate and trustworthy before signing a contract with them.

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Are Extended Warranties Worth It?

Considering the fact that you are spending a great deal of money on your new car, you may be wondering if buying an extended warranty is worth it, especially since you’re already getting a factory warranty. Before you decide to either buy or forgo an extended warranty purchase, let’s go over some of the pros and cons.

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Pros of an Extended Warranty

You can customize the warranty to suit your needs. Companies that offer extended warranties provide more products and service selection, allowing consumers to tailor the plan to make it just right for them. If you want to add 24-hour roadside assistance, for instance, you can add that to your warranty so it provides you with exactly what you’re looking for.

Extended warranties cover expensive repairs. These days, vehicles are heavily computerized, and when components break down, they can be extremely expensive to fix or replace.

Car dealerships handle the payments and paperwork. Having to deal with all the paperwork and red tape involved when purchasing a warranty can be cumbersome. But with an extended warranty purchased directly through the dealership, this paperwork and any payments will be handled for you.

Cons of an Extended Warranty

They’re expensive. Obviously, an extended warranty means you’re dishing out more money after you’ve already paid for your car. That said, you may be able to negotiate to get the price of your extended warranty down.

Not all repairs are covered. There are always exclusions to extended warranties, so it’s in your best interests to read the fine print to make sure you know exactly what is and isn’t covered in your particular policy.

The pool of repair companies is limited. If and when you need to have your car repaired while it’s under the extended warranty time frame, you may be limited in the mechanics that are designated to make the repairs.

You might be paying for something you never use. It’s possible that you may be paying for something you never end up using with an extended warranty. That said, this may be better than actually having to go through the nuisance of having to take your car to be repaired and dealing with claims.

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What About an Extended Warranty for a Used Car?

Up until now, we’ve been talking about extended warranties for brand new vehicles. But can you purchase these types of warranties for used vehicles?

Generally speaking, an extended warranty on a used car sometimes isn’t recommended. Warranty companies will do their homework on all types of cars and will know which models will be more likely to require repairs. They’ll also know how much specific repairs will cost and can charge more than what the repairs are actually worth.

As such, you could wind up paying an exorbitant amount of money for an extended warranty without really needing it. This is why knowing who you’re dealing with is so important.

Having said that, an extended warranty on a used car may be worth it if the vehicle is not very reliable. If that’s the case, make sure that you’re getting an ‘exclusion’ warranty that covers everything except for things that are specifically excluded. This will ensure that you’re getting more comprehensive coverage.

Further, make sure that the cost of the extended warranty isn’t more than it should be compared to the cost of repairs that will be most likely to occur. After all, you don’t want to spend more for the warranty then you would have to pay for repairs out-of-pocket.

New vs. Used Cars
Trying to decide between a new car and a used one? Take a look at this infographic.

Questions to Ask Before Purchasing an Extended Warranty

Before you agree to buy an extended warranty, be sure to ask some of the following questions first:

  • When will payment have to be made if a repair is required – before or after the repair is made?
  • Is there a deductible that has to be paid before a repair is made?
  • How long will it be until I am reimbursed?
  • Will my car be replaced with new or used parts?
  • Can I make another claim for the same part a second time if necessary?
  • What exactly is not covered in the warranty?
  • What are the rules on regular maintenance in order to ensure the warranty covers repairs?

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Manufacturer Warranties vs. Aftermarket Warranties

If you decide to buy an extended warranty, you can wait until after the factory warranty has ended or while it’s still in effect. As such, you’ll have a longer coverage period.

Extended warranties from a manufacturer are basically an extension of the original factory warranty, which means anything that is included or excluded will stay the same. The only difference is the actual coverage period.

But extended warranties from third-party companies are a bit different. These warranties may have different inclusions and exclusions, as well as different perks and terms since they’re not from the manufacturer.

Factory and extended warranties also have some similarities. For instance, extended warranties also have coverage limits, just like manufacturer warranties. With extended warranties from the manufacturer, the extended period is typically established ahead of time. But with third-party warranty companies, you might get more coverage options and maybe even the ability to tailor the coverage terms for your car.

Final Thoughts

It’s nice to know that your car is covered for damage, especially during the first few years that you own it. Considering the hefty price tag for a car, being covered for the cost of certain repairs can provide you with some peace of mind. And you can extend that reassurance if you purchase an extended warranty. That said, purchasing additional coverage should only be done after careful consideration and only if it makes sense for your car and your situation.

In The Market To Purchase a New Vehicle?

If you’re thinking about purchasing a new vehicle and are looking for the best way to finance it, Loans Canada can help. We can match you with a variety of financing options to meet your needs. 

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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