Is an Extended Warranty Worth It on a Used Car?
The finance office will almost always offer you an extended warranty on a used car, usually right when you're signing the loan. The pitch can be persuasive, and some buyers do benefit. Whether you should buy one depends on the car, the contract and how much repair risk you can absorb on your own.
The short answer: An extended warranty is worth it on a used car only when the car has known expensive failure risks, you couldn't cover a big repair from savings, and the contract is from a solid provider at a negotiated price. For a reliable car with remaining factory coverage, setting the money aside yourself usually costs less.
Key takeaways
- A used car "extended warranty" is usually a service contract, which the FTC notes is not a warranty under federal law because you buy it separately.
- The FTC says service contract prices can range from several hundred to several thousand dollars, depending on the car, the coverage and the term.
- Coverage that overlaps a remaining factory warranty mostly pays for protection you already have.
- Buying a dealer service contract within 90 days of purchase means the dealer can't remove implied warranties on the systems it covers.
- Price, deductible, the administrator behind the contract and the cancellation terms matter more than the brochure's list of covered parts.
What is an extended warranty on a used car?
An extended warranty on a used car is almost always a vehicle service contract. The FTC's guide to auto warranties and service contracts explains that a warranty comes with the car and is included in its price, while a service contract is a separate purchase. Because you pay for it separately, it is not a warranty as defined by federal law.
Service contracts are sold by manufacturers, dealers and independent companies. Many dealer-sold contracts are run by an outside administrator, which decides whether claims get paid. That makes the administrator's track record a big part of what you are buying.
How much does a used car extended warranty cost?
Used car service contracts commonly cost from several hundred to several thousand dollars, according to the FTC. The price depends on the make and model, the car's age and mileage, how many parts are covered, the length of the term and the deductible.
Dealer prices are also negotiable. The finance office often has room to lower the price, and the cost is frequently added to your loan, which means you also pay interest on it. Always ask for the total cost of the contract, not just how much it adds to the monthly payment.
| Factor | Pushes price up | Pushes price down |
|---|---|---|
| Car's brand and repair costs | Luxury or complex vehicles | Mainstream, simple vehicles |
| Mileage at purchase | High mileage | Low mileage |
| Coverage level | Exclusionary ("bumper-to-bumper" style) | Powertrain only |
| Term | Long term and high mileage limit | Short term |
| Deductible | $0 deductible | Higher per-visit deductible |
| Where you buy | Bundled into a dealer loan | Shopped and negotiated separately |
When is an extended warranty worth buying?
An extended warranty is worth buying when a large repair would cause real financial trouble and the car has meaningful risk of one. Ask yourself four questions:
- Is the factory warranty over or nearly over? The FTC notes that a contract that starts before the factory warranty ends probably won't help much.
- Does this model have known costly problems? Check NHTSA complaints and recalls and reliability ratings for the exact year.
- Could you pay a $3,000 to $5,000 repair from savings? If not, the contract may provide useful peace of mind.
- Is the price reasonable compared with likely repair costs? A contract that costs nearly as much as the repairs it would cover is a poor bet.
A late-model, low-mileage car from a brand with strong reliability ratings, especially one still under its factory powertrain warranty, is a weak candidate. An older luxury vehicle, or a model with known transmission or engine issues, is a stronger one. Our guide to the most reliable used cars helps you judge where your car falls.
Should you just save the money instead?
Saving the money yourself often works out better for reliable cars. Service contract providers price their products to cover expected claims, administration costs and profit, so on average buyers pay more than they get back in repairs.
A simple alternative is to put the amount you would have spent on a contract into a separate savings account and add to it monthly. If the car never needs a major repair, the money stays yours. The catch is that self-insuring only works if you have the discipline to leave the fund alone and if a large repair wouldn't arrive before the fund grows. A pre-purchase inspection also lowers your risk, because it can catch expensive problems before you own them.
What questions should you ask before buying one?
Ask questions that reveal what the contract will actually pay for and how hard it is to use. The FTC recommends checking these points before you sign:
- What exactly is covered and what is excluded? Get the contract itself, not a brochure.
- What is the deductible, and is it charged per visit or per repair?
- Who is the administrator, and what are your rights if a claim is denied?
- Can you use any licensed repair shop, or only the selling dealer? Is pre-approval required?
- Does it cover towing, a rental car, and the mechanic's full labor cost?
- Will it pay for new parts, or only used or remanufactured ones?
- Does it require following the factory maintenance schedule, and what records must you keep?
- Can you cancel for a prorated refund, and can you transfer it if you sell the car?
If the salesperson can't answer in writing, treat that as a reason to wait.
Does buying a service contract affect your implied warranty?
Buying a dealer service contract can give you extra legal protection. The FTC's guide to buying a used car from a dealer says that if you buy a service contract from the dealer within 90 days of buying the car, the dealer can't remove implied warranties on the systems the contract covers, even if the car was sold "as is" (where state law allows implied warranties).
That is a useful detail if you are buying an "as is" car from a dealer. The Buyers Guide posted on the window shows whether the car comes with a dealer warranty or is sold as is. Our guide to the FTC Buyers Guide and as-is sales explains how to read it.
Is a certified pre-owned warranty better than an extended warranty?
A manufacturer certified pre-owned warranty is typically stronger than a third-party extended warranty, because the automaker backs it and its dealers perform the repairs. CPO coverage is built into the car's higher price, so compare that premium with the cost of a non-certified car plus a service contract.
CPO programs differ by brand. Some add comprehensive coverage for a year or so, while others mainly extend the powertrain warranty. Read our certified pre-owned vs. used comparison before you decide. Also beware of unsolicited calls and mailers selling "extended warranties"; the FTC warns these may falsely suggest they come from your dealer or manufacturer.
Let the right car come to you
The best protection against repair bills is buying the right car in the first place. Scout lets you describe what you want, including model, year range and mileage, and emails you when a matching car appears at a dealer near you. Learn more about used car alerts. Scout doesn't sell warranties or service contracts.
Frequently asked questions
Can I buy an extended warranty after I buy the car?
Yes. You can usually buy a service contract later from the manufacturer's dealer network or an independent provider, often while the factory warranty is still active. Prices tend to rise as the car ages and adds miles, but buying later gives you time to compare providers and avoid adding the cost to your car loan.
Is the price of an extended warranty negotiable?
Yes. Dealers typically earn a profit on each service contract they sell, so finance managers often have room to reduce the price. Ask for the full contract price in writing, compare it with quotes from other sellers, and decline if the price doesn't come down. Never judge it only by the change in your monthly payment.
Can I cancel an extended warranty?
Most service contracts can be canceled, often for a prorated refund minus a cancellation fee. The terms are in the contract's cancellation section, so read it before you buy. If the contract was financed, the refund usually goes toward your loan balance rather than to you directly.
Do extended warranties cover wear items like brakes and tires?
Usually not. Service contracts typically exclude normal wear items such as brake pads, tires, wiper blades and clutches, and the FTC notes they generally don't cover accident damage either. Some plans add maintenance benefits, but you pay for them in the contract price. Check the exclusions list carefully.
Do I have to use the dealer for maintenance to keep a warranty?
For a manufacturer's warranty, no. The FTC says it is illegal for a manufacturer or dealer to deny warranty coverage simply because routine maintenance was done elsewhere. A service contract may set its own repair-shop rules, so check whether it requires a specific shop or pre-approval before repairs.