Buying a used car can be a little more nerve wracking than buying a brand new one. A new car comes with several warranties straight from the factory. You’re the first owner, so you know it hasn’t been abused, and you’ll always know how well it was cared for. You know when you buy it that if something goes wrong early on, you probably won’t have to pay to fix it.
But used cars are a different story. You usually don’t know anything about the person, or people, who owned it before you. That means you don’t know if it got regular oil changes, or was driven harshly. And a used car doesn’t necessarily come with a warranty, which makes things even more dicey. Of course, that’s offset by the fact that a used car is almost always much less expensive than a similar new one, but that’s small comfort if you’re facing a $5,000 repair.
Some used cars do come with warranties. Some still have the balance of the factory warranty because they’re still new enough and with a low enough mileage to still be covered. Others are what’s called CPO, for Certified Pre Owned. That’s a factory-backed program where dealership technicians will go over the used car, making sure everything’s up to snuff and fixing anything that isn’t right. CPO cars almost always come with an extended warranty that adds years and mileage to the factory warranty.
But what if your used car was sold as-is, with no warranty at all? There’s still an option for you, and that’s called a vehicle service contract, which is often inaccurately known as an extended warranty.
Extended warranties are almost always not actually warranties. A warranty is simply a promise from one person or business to fix whatever breaks that’s covered by the warranty. To qualify as a real warranty, it has to be included in the price of what you’re buying. When you buy a new car, the bumper-to-bumper, powertrain, emissions, corrosion, and other warranties come with it. You don’t have to pay more to get them.
But most aftermarket warranties cost money. If you have to pay extra, it’s not really a warranty, it’s a service contract. That’s important because service contracts and warranties don’t have to approach repairs in the same way. For example, you’ll never have to pay a deductible to fix a car that’s covered by the factory warranty. Oftentimes with a service contract, you will. So even though we use the terms “service contract” and “extended warranty” interchangeably here, it’s important to remember that there are differences between true warranties and service contracts.
That doesn’t mean service contracts are automatically suspect. Sometimes they can be quite valuable. If you drive an unreliable car that isn’t covered by the factory warranty anymore, and repairs are expensive, a service contract can sometimes pay for itself several times over. But it does mean that you want to read those warranties even more carefully than you read the factory warranty that came with the car. Why? Because you’ll get the factory warranty no matter what. It’s part of the price of the car. But you get to choose whether or not to buy an extended warranty, and reading it thoroughly will tell you if buying it is worth it to you.
If you’d like used car warranties explained even more, we’ve got an Insider’s Guide article posted that goes into a lot more detail.
The best used car warranties are CPO warranties. They’re true warranties; they’re rolled into the price of the used car. And they’re factory-backed, which means you don’t have to go through third party companies for approval when you need something fixed. But you can only get them from a dealership that sells the kind of car you’re buying. If you buy a Honda at a Ford dealership, you won’t be able to get a CPO. And only certain cars, usually the ones in the best condition to begin with, are picked for CPO programs, which means you’ll pay more for them.
Not everyone buys a late-model used car from that car’s dealership, and for those folks, the next best thing is a third party extended warranty with what’s called an exclusionary contract. What’s that? There are two main types of contracts in the warranty game: inclusionary and exclusionary. An inclusionary contract includes the parts it covers, and only the parts it covers. If something breaks, and it’s not listed in an inclusionary contract, then it’s not covered.
By contrast, an exclusionary contract covers everything but what it specifically excludes. Why is that important? Let’s take a powertrain warranty as an example. A lot of people see “powertrain warranty” and assume that anything on the car that’s used to transmit power from the engine to the wheels is included. That means the engine, transmission, driveshaft, axles, and everything in between.
But that’s almost never the case. For one, wear parts like clutches are almost never covered by any contract. When you’re trying to figure out what a contract covers, especially if you aren’t up on the intricacies of how cars work, it’s a lot easier if the contract is exclusionary. An inclusionary contract might say that it covers pistons, metal parts in the transmission, the driveshaft etc. Unless you know there are other parts involved in the powertrain - ones that aren’t listed in the contract - you might assume that the whole powertrain is covered, and then be surprised when something breaks and the warranty won’t cover it.
On the other hand, an exclusionary contract will specifically tell you what it does not cover. If it’s not specifically excluded, it’s covered. Exclusionary contracts are generally not only easier to interpret, they also tend to provide greater coverages. That’s why exclusionary contracts are often the top tier offerings from extended warranty companies.
But even amongst exclusionary contracts, there are more and less valuable offerings. Here at Car Talk we’ve spent a lot of time looking at extended warranty companies, and we’ve come up with some guides as to which ones you might want to consider if you’re shopping for a warranty.
Among our top-rated companies are CARCHEX, autopom!, and Liberty Bell, Toco, Mercury, and Concord are strong contenders as well. You can read a lot more about those companies and more in our 8 Best Extended Car Warranty Companies in 2021 article.
That question really depends on a lot of factors. How reliable is your car? How risk-averse are you? Are you good at budgeting for unknown expenses?
Someone who drives a late-model Toyota probably isn’t going to face many, if any, expensive repairs any time soon. Extended warranties might not make as much sense to that person as they would to someone who drives a car that’s known to be unreliable and expensive to fix.
On the other hand, if that Toyota driver is likely to lose sleep worrying about having to pay for a potential car repair, an extended warranty might be worth it even if it’s not likely to ever be used. There’s a lot of value in psychological peace of mind.
Finally, if you’re someone who isn’t very good at saving money for a rainy day, an extended warranty can sometimes be like a built-in savings account. If your car breaks and you’re broke, that service contract could be just what you need.
From a purely economic standpoint, you’re statistically likely to spend more money on a service contract than it pays for. That makes sense - companies wouldn’t offer them if they constantly lost money on them. And that’s true of regular insurance policies too. You probably have insurance on your house that will pay out if it ever burns down, but you’re very unlikely to ever have to use it.
Used car extended warranty prices are quite literally all over the map. They depend on a huge number of factors including what kind of car you drive, it’s reputation for reliability, its mileage, etc. It also depends on which level of coverage you choose. Most companies offer several tiers of coverage, with the lowest covering significantly fewer parts than the highest.
Extended warranty companies use amortization tables which tell them how much they can expect to pay, on average, to repair your specific car during the warranty period. They take that number and add a healthy profit margin on top to determine what you’ll pay.
There’s one site that you can use to get a very rough ballpark of what you might expect to pay. CarMax is a nationwide used car dealership which offers extended service plans. They have a price estimator that will give you ranges based on what style of vehicle you drive, its mileage, and your chosen deductible. Of course, those prices specifically reference CarMax’s prices on their service plans, which are only available on cars you buy from them. But it’ll give you a small idea of how much prices can vary, from around $1,200 for a sedan with very low miles and a $300 deductible to as much as $1,900 for an SUV with higher mileage and a lower deductible.
And those prices are very low compared to other extended warranties. Don’t be surprised if your estimate comes back closer to 3 or 4 thousand bucks. If you drive something known to be unreliable and expensive to fix, expect it to cost even more.
As weasley as it sounds, the answer to whether or not a used car warranty is worth it is, “it depends.” If you’re driving something unreliable that is likely to cost you a lot of money to fix, and you can find a good deal on an extended warranty, it might well be worth it. Others have come out on top this way, with one automotive journalist costing his extended warranty company more than the total value of his car with all the expensive repairs his Range Rover needed.
But that’s going to be a rare situation. On average, you will pay more for a used car warranty than it will pay in repairs. That’s to be expected - like we said earlier, companies wouldn’t sell them if they weren’t making a profit. So from a purely financial perspective the answer has to be “probably not, unless you get lucky.” Money-wise, you’d often be better off taking the money you would have paid for the warranty and putting it into an interest-bearing account. If the car breaks, you’ve got the money to cover it. If it doesn’t, you’ve got a nice nest egg.
However there are a lot of non-financial reasons to consider an extended warranty. If you’re a worrier, that used car warranty will reduce your anxiety about potential breakdowns because you know you won’t have to foot the bill - or at least, not all of it.
If you have trouble putting money aside for unexpected expenses, that’s also where a warranty could be helpful. Dealing with a broken car and no money to pay for repairs isn’t any fun, and if that’s a possibility for you, a service contract might be worth considering.
Used car warranties are very careful to specify what they do or do not cover. What you need to know about them is contained right in the contract! Read it carefully so you know what you’re buying. Don’t trust the salesperson or even the brochure. They might have outdated or otherwise incorrect information. Only the contract counts when you’re determining what’s covered.
Different states have different regulations surrounding extended car warranties, from almost no regulation at all to states like California which have very strict rules for companies selling and providing them. It’s a good idea to know, at least somewhat, what your state requires of warranty companies. That way you can judge whether or not the company you’re considering is a legitimate operator. Fortunately we’ve done some of that research for you, and that’s available here, in our guide to extended warranty laws for each state.
Another thing to know is that while there are lots of legitimate extended warranty companies which will provide the service they promise to, there are also lots of scammers out there. The number one complaint to the FCC regarding unsolicited phone sales calls was about extended warranty companies. And government officials say the vast majority of those sales calls are from scam companies that you should avoid doing business with. In general, a legitimate company will let you come to them - they won’t call you unless you have a previous relationship with them.
Everything’s negotiable. Especially if you’re buying the warranty from a dealership. There’s a high profit margin on just about everything a dealership sells, so there’s wiggle room.
Yes! There are lots of companies selling used car warranties to people who already own the car. We’ve got a list of some of them here.
Yes, with some nuance. Most contracts are cancellable within the first 30-60 days as long as you haven’t filed a claim. Some let you cancel at any time for a prorated refund.
Some warranties are transferable to the car’s new owner, often for a small fee. Others will be cancelled and give you a refund that’s prorated based on how long you had it.
Like extended car warranty prices, what they cover varies widely. Some cover relatively little - mainly internally lubricated parts of the engine. Others cover a lot more, even including fancy electronics like navigation systems and cameras.
The best way to get a good price is to compare offers. These are some popular options...