Extended Warranties for Cars

My response to questions from Wallethub.

Do you have any advice for someone searching for the best extended car warranty?

Extended warranties can be a Godsend or pure “dealer gravy” as many refer to them in the social media. Their value depends on several circumstances. For example, a special warranty for tires covering road hazards for a car owner with low profile tires who uses his or her car a lot at a region with poor pavements and potholed roads can actually save a lot of money in tire replacement costs.

The reliability of brands varies widely as reported by Consumer Reports, J.D. Power and other automotive testing/surveying outlets. An extended warranty on a less reliable brand or car model makes more sense than an extended warranty for the most reliable car in each class of vehicle.

When does paying for an extended car warranty make the most/least sense?

Extended warranties make less sense for EVs which are mechanically simple vehicles and their battery is covered for an extended period by law. Extended warranties make more sense for expensive vehicles and vehicles loaded with comfort and technology features (as long as there are no significant exclusions.)

Usage is an important factor. Some users put only 5,000 miles a year on their car while others approach 50,000 miles a year. The former will not benefit much from a 5-year extended warranty.

Most extended warranties come with a number of limitations and exclusions; and a lot of fine print. The prospective buyer should spend the time to review the details of coverage and exclusion clauses. It is important that the warranty extends to at least five years after the manufacturer warranties run out.

Finally, a common misconception of car buyers is that extended warranties are bumper-to-bumper including wear parts and accidentally damaged parts such as brake pads and rotors or cracked windshields. Nearly all warranties, including manufacturer warranties, do not cover these items.