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ACU Blog  / 5 Reasons Why an Extended Car Warranty is Worth It
17 August 2021 / 4 minute read

5 Reasons Why an Extended Car Warranty is Worth It

An extended car warranty (also called an extended service contract) covers unanticipated issues past the manufacturer's warranty. Here's why it matters.
Words Allegiance Credit Union
17 August 2021
4 minute read
Extended car warranty helps cover this repair the mechanic is making to this car.

After test driving a new or pre-owned vehicle, buyers decide on the most suitable car, truck, or SUV that meets their needs and fits into their budget. The process of loan approval, providing a down payment, and reading through the paperwork can prove overwhelming. In the midst of all the excitement and anxiety about spending a good deal of your hard-earned salary, a dealership representative asks about purchasing an extended car warranty.

The fact this topic came up at all may make people wonder, “what’s wrong with the car?” In all likelihood, nothing. But the manufacturing process is not perfect, and sometimes things break or wear out over time. An extended plan fills cost voids in the event a repair is needed that doesn’t fall within the manufacturer warranty framework. Rather than wave it off as an unnecessary expense or sign out of worry, it may be in your best interest to shop for other resources for a program that meets all of your financial concerns and offers a few perks as well. Extended car warranty protections are not only available at car dealerships at the time of sale. They are available through a variety of sources including local credit unions and community banks that have your best interest in mind.


What Is An Extended Car Warranty?

It’s important for buyers to understand that the term “extended car warranty,” also commonly called an “extended service contract,” is a type of coverage for unanticipated parts, labor, and repairs beyond the ordinary manufacturer warranty.

An extended warranty is typically rolled into the vehicle’s initial purchase price and is an optional plan available for purchase that typically begins when the manufacturer’s warranty expires. Occasionally, the two may overlap depending on the coverage. In essence, an extended car warranty provides additional coverage against potential vehicle-related expenses for a set amount of time. Everyday people decide to pay a seemingly nominal fee to avoid doling out a potentially large sum later. In this way, extended service contracts function in a similar fashion as some insurance policies.


What Do Extended Car Warranties Cover?

Manufacturer warranties may not necessarily cover every conceivable malfunction, even when the car is purchased brand new from a dealership. This ranks as one of the driving factors behind why people consider an extended warranty. Depending on the product, consumers may be able to close obvious and underreported gaps. Potential buyers who are unsure about purchasing this additional auto protection would be wise to consider the following questions.

  • Are you currently under warranty?

  • When did your warranty begin?

  • When do you anticipate a warranty timing out?

  • What doesn’t the existing extended service contract cover?

  • How much could a major repair set you back without an extended warranty?

If you are considering a vehicle that includes next-generation technology, that alone may be a reason to look at additional coverage. Say, for example, the manufacturer warranty only covers the system for up to five years or 60,000 miles. The idea of incurring a potentially massive repair bill after 60 months or exceeding the mileage limit warrants both concern and additional protection.

Among the popular extended service contracts, bumper-to-bumper coverage effectively eliminates a buyer’s out-of-pocket expenses. Although there may be exclusions for certain vehicles, things such as drivetrain, engine, and corrosion are usually covered. It’s also not uncommon for extended warranties to offer a wide variety of convenient perks. These comprehensive contracts often fill in cost gaps and add years of additional coverage.

searching car online

Top Reasons Why An Extended Car Warranty Is Worth it

The decision to secure an extended warranty involves some due diligence and financial planning. A new or certified pre-owned car, truck, and SUV buyer can weigh the potential cost benefits against the disastrous financial disruption of paying out of pocket for repairs. These rank among the top reasons many community members are glad they took an extended service contract.

  1. Save Money: The high cost of automobile repairs can be eye-raising. Mechanics pass along the rising cost of parts and labor that ticks up every year. In the event a repair is required, the upfront expense of a plan pales by comparison to the cost people can suffer down the road.

  2. Peace of Mind: Imagine owning a house and not having homeowners insurance. To say you would have a few restless nights would be something of an understatement. That’s primarily because buying a home usually stands as someone’s largest investment. A new or certified pre-owned car, truck, or SUV is another big-ticket item. Money may not be able to buy happiness, but it can sure offer peace of mind in terms of not worrying about an unanticipated expense.

  3. Overlooked Benefits: Although people think of extended car warranties as only a way to avoid high repair bills, many products deliver added value. Companies in the warranty industry know they must compete for your business. This factor prompts them to include wide-reaching benefits such as roadside assistance, towing, automobile rental reimbursements, hotel stays, total loss refunds, and additional perks. Competitive, extended service contracts may even offer a $0 deductible.

  4. Flexible Repair Locations: Manufacturer warranties sometimes link the parts and labor to their approved dealership locations. The conventional wisdom is they save money because parts and labor are provided at cost. When someone uses their preferred auto mechanic, parts, labor, and business profit are usually included in the bill. Some extended warranty plans allow buyers to work with certified auto mechanics and body shops of their convenient choosing. Be sure to do your research to find the best plan to fit your needs.

  5. Increased Resale Value: Vehicle owners who purchase transferable extended service warranties may inadvertently add value to the car, truck, or SUV. Some plans allow buyers to effectively transfer the protection for a nominal transfer fee to the new buyer. This means when you go to sell your automobile to a third-party buyer, you can ask for more money. They are getting a perk that you initially paid for, and it’s not unreasonable to recoup the unused portion of your investment.

Acquiring an extended car warranty ranks among the easiest types of protection available. The application process takes little time, and buyers do not necessarily need to make an immediate commitment at the point of purchase. After all, there will be a whirlwind of paperwork being shuffled around, and buyers may want to weigh the cons of the plan as well. Before signing off, decide whether it meets all of your coverage needs or only a handful. Next, think about what added perks are included and whether another plan offers more. Lastly, ask yourself whether it’s a use-it-or-lose-it deal or if it delivers transferable value.


How To Decide If An Extended Car Warranty Is Right For You

It may come as something of a surprise, but car buyers can shop around for the best possible extended service contract. Consumers sometimes believe these plans are only available at new and pre-owned car dealerships. Nothing could be further from the truth.

Extended car warranties are not necessarily linked to the manufacturer, and that allows people to evaluate rates, coverage, and added value benefits. If you are considering whether to purchase an extended car warranty, conduct some due diligence and contact your trusted local credit union or community bank to discuss your financial situation and find the extended warranty that best serves your needs.

If you are considering purchasing a car or truck and want to know what services similar to an extended car warranty are available, review our "Car Loans 101: Car Buying Made Easy" complete guide.

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