1) When you buy a warranty from an auto manufacturer, you’re buying great customer service. When a covered part breaks on your car, the auto manufacturer’s extended warranty will usually pay for your repair without question. Auto manufacturers understand that failing to cover a repair might influence your next car purchase decision, so they take care of you to make sure you come back to them. After-market extended warranty companies, however, have no interest in maintaining a long-term relationship with you. Rather than cover repairs, after-market companies look for ways to deny coverage (even on ‘covered’ parts). Even worse, when an after-market warranty company does pay for a repair they often don’t pay the full amount. The repair shop must then either discount their work or attempt to collect the difference between their normal rate and the rate the warranty company pays from you. Bottom line - after-market warranty companies make money by denying your claims. Auto manufacturers make money by selling you more new cars. Don’t buy a vehicle extended warranty from an after-market company.

2) Manufacturer-backed warranties pay for better parts. Most of the time, a manufacturer-backed warranty will pay for OEM-quality parts. After-market companies, looking to save every dollar, rarely pay for OEM quality. Instead they’ll ask your repair shop to use after-market parts of lower quality, and in some cases they’ll only pay for used parts. Yikes.

3) Manufacturer-backed warranties will last. Here’s a scary story - a company called Automotive Professionals Inc. stopped honoring 250,000 service contracts when they filed bankruptcy in April 2007. The vast majority of those warranties are now completely worthless. The chances of this happening with a manufacturer-backed warranty are remote at best.

4) Manufacturer-backed warranties are easy to use. Finally, and perhaps most importantly, using a manufacturer’s extended warranty is easy. When you buy the warranty, most manufacturers enter it into their computer system. That way, when you go to any of their dealers, your warranty information is a few keystrokes away. Claims are just as easy too - most manufacturers have automated systems for processing extended warranty claims. Basically, all you need to do is show up. The manufacturer takes care of the rest.

Make sure to read our Extended Warranty Buyer’s Guide if you’re in the market for a new car, and remember to compare prices among different dealers before you buy a warranty.

1) Don’t call it a warranty. While the common term is “extended warranty,” the correct term is actually “service contract.” What’s the difference? Warranties cover defects only, a service contract provides service to a specific set of parts regardless of why they failed (except for abuse and acts of God).

2) Only buy a service contract backed by an auto manufacturer. Simply stated, manufacturer-backed service contracts are the best. Buying a service contract from an after-market vendor can be a complete waste of money. After-market service contract companies often dispute claims, they’re difficult to work with, and they sometimes fail to pay all your repair costs. The auto manufacturer wants to sell you another car someday, so their service contracts are usually excellent in terms of coverage, ease of use, and customer service. Read more about why you should buy a manufacturer-backed warranty…

3) Buy the best coverage. Don’t bother with buying anything less than a comprehensive service contract. What you’re looking for is a service contract that covers everything on the car, excluding wear and tear items. Buying the best coverage makes sense - even a repair of a small trivial item, like a bad power lock switch, can cost hundreds of dollars. Why not cover every part? Besides, buying lesser degrees of coverage usually doesn’t save much money. In many cases, the cost difference is a few hundred dollars. Get the highest level of coverage and you’ll be glad later.

4) Buy the longest term you can (provided the mileage makes sense). When you buy, try and match your coverage years with the miles you’re going to drive. For example, if you drive 15k miles a year, a 6yr/100k mile service contract makes sense. If you drive 10k a year, a 7yr/75k mile service contract would be better. Whatever you do, get the most you can - service contracts are most valuable in the last year of their coverage. Having said that, don’t pay for a service contract that lasts less than a year. They’re rarely cost effective.

5) Compare prices. This is the most important part of buying a service contract - since you’re only going to buy a manufacturer-backed service contract, you need to compare prices at lots of dealerships. The standard practice at most new car dealerships is to sell service contracts for $800-$2000 over cost. That kind of profit margin can easily double your expense. So, when you’re offered a service contract, find out what the up-front cash price is. Next, write down that price and ask if that’s the “best price” they can give you. Finally, tell the finance person that you’ll think about it and get back to them soon. When you get home from the dealership, call around to other competing dealers and ask them for their best price. A few minutes worth of work can save you a few hundred dollars.

6) Read the service contract. The vast majority of dealer employees are honest, however, that doesn’t mean you should trust everyone you meet. When it’s time to pay for your service contract, make sure to read it carefully. Be sure you understand the level of coverage you’re buying, the number of years and miles that you can drive while covered, and your deductible. Also, make sure the contract is for a manufacturer-backed warranty. I’ve heard of a few dealership personnel selling someone a after-market service contract and telling them it was factory-backed.

7) Check out the manufacturer’s service contract online. Most manufacturers have great websites that explain their coverage - just remember that the price online isn’t necessarily the price you’ll pay. Ford, for instance, sells their service contracts to their dealers for much less than they’ll sell them direct to customers. Your local Ford dealer can often beat the price you find online by a few hundred dollars - the same goes for Toyota, GM, and a host of others. In fact, the price you find online should be the most you pay.

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Here are some links to manufacturer’s service contract websites with more information:

Chrysler Service Contracts - servicecontracts.daimlerchrysler.com - Dodge, Chrysler

Ford ESP - GenuineService.com - Ford, Lincoln, and Mercury

GM Protection Plan - GMProtectionPlan.com - Buick, Chevrolet, GMC, Pontiac

Honda Care - HondaFinancialServices.com - Honda, Acura

Hyundai - HyundaiUSA.com - Hyundai

Toyota Extra Care - ToyotaOwnersOnline.com - Toyota, Scion, and Lexus

1) Do you have the ability to pay for a big repair? The worst-case scenario with any vehicle is that a major part (like an engine or transmission) fails and you get stuck with a huge bill - $1,500+. The good news is that huge bills are pretty rare. If you feel confident in your ability to come up with that kind of money, than you may not need an extended warranty.

2) Are you buying a reliable vehicle? Before you buy a new or used car, you should spend some time figuring out how reliable it is. Do some reliability research on new cars, and check out our advice for figuring out if a used car is reliable. If you have any doubts about a particular car’s reliability, buying an extended warranty might be a good idea. Of course, if you have doubts, you should also consider buying a different car.

3) Is the car for someone else? Are you buying a car for someone else to use? If so, are you concerned that they might be taken advantage of? Extended warranties prevent your friend or relative from being talked into unnecessary repairs, especially if you’re not close by to help them out. [Far away college students and older relatives come to mind.]

4) Budgeting is easier than paying for repairs. Even if you can afford to pay for an emergency repair, there’s a budget advantage in buying an extended warranty - especially if you can finance the cost with your loan. Adding a comprehensive service contract to your car payment costs the same amount every month, ensuring that you know exactly how much you’re going to spend on repairs every month.

The main advantage in buying an extended warranty is that you don’t have to worry about repair costs. You pay up front knowing that whatever happens during the term of your service contract, you don’t have to worry about paying for repairs. We’ve seen warranties pay for new engines, transmissions, transfer cases, engine control modules, etc. They can definitely pay off. The main disadvantage in buying an extended warranty is that you may not get your money’s worth. If you pay $2,000 for a 6yr/100k mile comprehensive warranty, and your car never needs a repair, your $2,000 was wasted.

My official advice - if money’s tight, an extended warranty is a good bet. While you may not get every dollar you spend on an extended warranty back, there is a good chance you’ll need to fix something. Considering that a “cheap” repair is a few hundred dollars, buying an extended warranty - especially if it can be financed with your car - makes sense for a lot of people. On the other hand, if you’re well off enough to pay for repairs (even really expensive repairs), then an extended warranty is not for you.

There are a couple basic rules of thumb when it comes to determining how an after-market part might effect your warranty. First, does the part substantially alter the function of your vehicle? Second, if the part is removed, can the vehicle be returned to the way it was before? If the answer to either of these questions is yes, than the part you’re considering will effect your warranty somehow. It’s also important to note that any after market part that’s not designed for your vehicle or improperly installed could definitely hurt your warranty. So, if you’re not sure how to install a part (or if you’re trying to rig something together), it might be wise to get some professional help.

Here’s a list of after-market parts that won’t hurt your warranty:

Most exterior “dress-up” parts: Bug shields, chrome grille guards, spoilers, or any other part that effects the appearance of your car only should NOT impact your warranty. The same goes for bed liners, tool boxes, roof racks, tonneau covers, and the like.

After market wheels: Provided they’re sized, mounted, and balanced correctly, they will not effect your warranty. Get professional help when selecting wheels and you should avoid any problems.

Custom exhaust systems: Provided the custom exhaust is “cat-back” (behind the catalytic converter), you’ve got nothing to worry about.

After market air intakes: Adding a new air intake to your car or truck will not effect your warranty, provided it is designed for your vehicle and installed properly. Stick with name brands (like K&N, aFe, AEM, AirRaid, etc.) and you’re good to go.

Consumer electronics: Adding an after market stereo, satellite radio, DVD player, radar detector, speakers, or any other normal consumer appliance to your vehicle will not effect your warranty, provided that it’s designed for vehicle use and professionally installed.

Work equipment: Adding normal work equipment to a vehicle - like installing a winch, a special tow hitch, a hydraulic lift, or snow plow will not effect your warranty provided it is designed for your particular vehicle and professionally installed.

Here’s a list of after-market parts that could hurt your warranty:

Suspension modifications: Installing new springs or spacers to drop or raise a vehicle does not substantially alter the geometry of the suspension system, so in most cases the warranty is in effect. However, dramatic changes to the suspension system - like raising or lowering a vehicle more than a couple of inches - could effect the warranty. The best advice here is to make sure whatever change you make to your suspension is reversible.

Performance computer chips and programmers: As long as your new computer chip or program is 100% removable, you’re OK. However, some older vehicles require you to crack open the vehicle’s ECU to install a new chip. If you have to open up something that should be sealed (like a computer), your warranty is probably going to be effected.

Here’s a list of after-market parts that will hurt your warranty:

Turbocharger or Supercharger: Adding an after market turbocharger or supercharger to your car is a great way to go fast, but you can kiss your factory powertrain warranty goodbye if you install one. The good news is that some manufacturers (like Ford Racing, TRD, Mopar, etc.) offer their own after-market units that come with their own warranty.

Nitrous Oxide: The movie “Fast and Furious” made nitrous oxide look cool, but the truth is it’s a great way to destroy an engine if it isn’t used properly. Unless you’re serious about drag racing, it’s probably best to stay away from this system as most manufacturers will deny warranty claims out of hand on vehicles with nitrous.

Racing Modifications: Adding a roll cage, a special racing seat or safety belt harness, and even something as innocuous as a fire extinguisher are all tell-tale signs that a vehicle is being used for something other than “normal” use. Most manufacturers will invalidate a vehicle’s warranty if they suspect it’s been raced, so stay away from these type of parts.

The bottom line is this - use a little bit of common sense when adding parts to your vehicle. If it’s not permanent, and if it doesn’t really effect the way your vehicle works, it’s probably just fine.

1. Bumper to bumper. Covers defects on almost everything on the car, usually for at least three years or 36,000 miles.
2. Power-train coverage. Simply put, a power train warranty covers everything that makes the car “go”. While some manufacturers only warranty their power train for three years or 36,000 miles, most are now covering their power trains five years or 60,000 miles. These are often included on certified used cars as well.
3. Federally mandated warranties. Certain parts of the emission system, as well as the airbags and safety belts in the car.

Here’s what is covered under these warranties:

Imperfections and Damage (but only when brand new) – If your brand new vehicle has a rip in the seat, a tear in the head liner, if a piece of fabric is discolored, or if a body panel is improperly painted and doesn’t look right, these are all covered under the warranty. However, there is a caveat – you must get these things noticed and documented before you take delivery of your new car. Before you leave the dealership with your new car, inspect it very carefully so you can catch all these things. If you bring the car back to the dealership after a few days with a torn seat or a scratch, the dealer may not warranty these problems.

Adjustments – If there’s something on the car that isn’t quite right, or that isn’t done to your satisfaction, that’s usually considered an “adjustment”. These things may not affect the functionality of the car. For example, let’s say the front grill sticks out a little on the left side, or maybe the radio doesn’t seem perfectly centered in the dash. These things are covered under warranty, but usually only for the first year or the first 12,000 miles.

Defects – Anything that doesn’t work the way it’s supposed to is covered under warranty.

What’s not covered?

Damage – Damage isn’t covered under warranty - that’s what your car insurance is for.

Wear and Tear – Damage or problems that result from normal wear and tear are not covered. For instance, if the knob on your radio falls off, if a door handle breaks, or if there’s an interior piece that wears out or that gets scuffed, they may not be covered under your factory warranty.

As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.