Why an Extended Warranty Can Be Important in a Used Car
The short answer is that many American consumers don’t have the money to pay for a major service. Here’s why
Used car prices were all over the place in 2020, thanks to the pandemic and the impact on consumer spending. Prices tanked in April, but then rebounded to higher levels than ever in October, according to the man him Used Vehicle Index, the product of auction values at Manheim sites around the country.
In 2021, there’s no reason to expect that the median price for a used car is going to be much less than $20,000.
That’s a major investment that’s becoming more challenging in 2021, as consumers struggle with rent, unemployment and all of the other expenses required for survival.
That means they’re taking out bigger and bigger loans to pay for the cost of the car. American consumers are financing– on average– more than $19,000 for used cars, and they’re doing it for 48 or even 60 months.
A $20,000 note for five years on a car that is within 18 months of being completely out of extended warranty– even with the supplemental warranties offered by CarMax and manufacturer Certified Pre-Owned Programs– is a major gamble. A $19,000 car loan with a 3.11% APR for 60 months is $342 per month.
Tighten that loan to 48 months, which most banks are going to want to do with higher mileage or older vehicles, and that payment rises to $421 per month.
The last thing you want to do when you’re paying $421/mo on a car loan is to have to worry about paying for a $4,000 transmission rebuild completely out of pocket. That’s the benefit of purchasing an extended warranty on a used car.
Used Car Warranties: What To Consider
Here are a few points to consider when deciding whether or not a vehicle protection plan is worth it for you
Financial value: Some cars are more likely to need repairs than others, and fixes are more expensive for certain models. The more likely your used vehicle is to suffer a mechanical breakdown, the more likely it is that you’ll use enough of your extended warranty coverage to make it worth the cost.
Expense management: For many people, making regular monthly payments is easier than setting aside thousands of dollars for auto repairs. If you prefer regularity with your expenses or have trouble saving, extended car warranties offer additional value.
Peace of mind: Covering your used vehicle with an extended warranty means not having to worry about whether you’ll b e able to afford surprise repair bills. Protection plans for used cars can help make owning one a little more worry-free.
Do I Need an Extended Warranty and Insurance?
If you’re looking for total protection and own a high mileage vehicle, then yes. An insurance company works to cover repair bills that were caused by a sudden accident.
On the other hand, an extended warranty covers both parts and labor of repairs that originated from a manufacturing error. So if you experience an issue with your air conditioning, then providers like Endurance work with ASE-certified repair shops to fix the issue and get you back on the road.
Other options, like mechanical breakdown insurance, offer similar services as an extended warranty but often include less value.
Third-Party vs. Dealership Extended Warranties– Which Is Better?
During your quest for the best auto extended warranty, you can’t help but wonder if you should choose a warranty from a dealership or a third-party company. Which option provides the best warranties?
If you truly want the best warranty, get it from a third party instead of the dealership. Third-party extended warranties are typically more:
- Affordable
- Flexible
- Comprehensive
Countless people are unhappy with the used car warranties they purchase from dealerships because of the limited coverage. There are normally lots of exclusions, making it difficult to get the necessary repairs.
Also, people are often surprised by the cost. In some cases, the dealership even rolls the warranty payments into the car payment. When that happens, you don’t just pay the warranty amount. You pay interest, as well. That’s not a good deal at all.
If you’re interested in getting the best warranty possible, stick with third-party companies. You’ll get better coverage, and it will fit into your budget.
Then, you won’t have to stress out about what your warranty does or doesn’t cover or how you’re going to pay for it. Instead, you can just focus on enjoying your vehicle without worrying about the cost of repairs.
5. What Used Car Warranty Customers Say
We spent time purchasing car warranties to try out coverage for ourselves. While it’s difficult to predict when you’ll need a vehicle repair, our warranty buying experience was quick and straightforward with each provider we tried.
Representatives we worked with at Endurance, Car Shield, auto pom! and Carchex were friendly and prompt, and we were offered various discounts depending on the provider.
In May 2024, we polled drivers to get insight into consumer extended car warranty experiences. Out of 1,000 extended warranty customers, 96% said they were satisfied with their warranty coverage.
Many left direct feedback about the peace of mind that came with not needing to pay out of pocket for serious repairs. Companies like Endurance and Car Shield received praise for excellent customer service and, of those who needed to file a claim, 98% said their claim was approved.
On July 31, 2024, the Federal Trade Commission announced that Car Shield must pay $10 million to settle charges that its advertisements and telemarketing for vehicle service contracts are deceptive and misleading, and that many consumers found that repairs were not covered.
The company said in a statement that its marketing now offers consumers more details about the car repairs typically covered and notes that customers can visit its website, where they can look at full plans before buying. The MarketWatch Guides team is reviewing this information and will reevaluate all Car Shield rankings.
Choose the best Extended Warranty cover for your used car
Buying a used car is a cost-efficient choice for many people. However, with that choice comes the responsibility of ensuring its longevity and protection.
This is where extended warranty cover becomes important– it safeguards against unexpected repairs and expenses that can sometimes come with an older car. Selecting the best car warranty cover could mean greater peace of mind for the road ahead.
Extended warranty cover for used cars is a great idea when the car’s original manufacturer’s warranty has expired, offering additional protection against mechanical breakdowns, faulty parts, and unforeseen repairs.
This is one way to help ensure that your investment is protected because you can trust you’re covered against some of the uncertainties of vehicle ownership.
Comparing Inclusionary vs. Exclusionary Car Warranty Coverage
There are two main categories of extended car warranties coverage: inclusionary and exclusionary coverage. Both can help you save money and give you peace of mind, but the way their coverage is structured is what sets them apart.
Inclusionary warranties spell out exactly which items are covered, meaning anything not listed is excluded. Exclusionary warranties work the other way around– they list the parts that aren’t covered under your extended warranty, which means anything that isn’t explicitly listed under the exclusions is covered.
Exclusionary warranties typically offer more comprehensive coverage, and here’s why: It’s much easier to list a few specific items that are excluded than to provide an exhaustive list of everything that’s covered.
This generally means that the list of included coverage is pretty extensive. And because of this broader coverage, exclusionary warranties typically cost more than inclusionary warranties.
Which one should you choose? For newer and higher-value vehicles where you might want extensive protection, an exclusionary warranty is likely a better investment. But if you drive an older vehicle that’s less expensive to replace, inclusionary warranties may make more financial sense.