Buying a Car: Standard and Extended Warranties

by Amy Lillard

Your new car's transmission is shot. How much you pay to fix it is dependent on what type of warranty you have.



Did you know that hourly labor rates average over $80.00 nationwide? Did you know you are responsible for these costs in addition to parts, which can cost $2000 or more for a busted transmission?

But if you cover your new or used car purchase with the appropriate warranty, you can get rid of these costs in favor of a far more reasonable deductible.

In this article we discuss the different kinds of warranties, as well as full details on purchasing warranties, essential components, and places to shop around.

Standard Warranties

New cars typically come with a standard warranty that covers 36 months/36,000 miles. This means that for 36 months or 36,000 miles, whichever comes first, repair costs for normal usage are covered. Both parts and labor costs are covered. The only exception is if the breakdown is a result of misuse, accident or lack of maintenance.

Used car warranties are much less predictable. The most typical arrangement is a 3-month/3000 mile warranty that covers only major components such as engine, transmission and rear end.

New and Used Auto Loan Rates

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Extended Warranties

These warranties are your chance to extend your coverage. Depending on the price you pay and the limits of its coverage, your extended warranty can either be a mistake or a valuable purchase.

There are often huge differences between various plans and providers. Key details to watch:

• Who administers the coverage? Knowing who pays out on your policy can give you insight into the potential weaknesses of the coverage you're considering. Administrators act as claims adjusters, authorizing the payment of claims to the service repair facility under the contract terms.

• How does payment work? Do you need to pay upfront and get reimbursed, or does the plan take care of everything?

• What exactly is the extent of the auto warranty coverage? Extended warranties come in many levels of coverage with many different definitions on what the coverage will pay for. Some car warranties cover mechanical breakdown, while better warranties, often called “bumper to bumper,” will cover wear & tear failures, seals & gaskets, the emissions system and not exclude damage due to overheating.

• What's the deductible? And is the deductible charged per visit or per repair? Per visit means one deductible for any number of repairs on that same visit. Per repair means five items that are covered under warranty incur five deductibles.

• Where can you take your vehicle for repairs? How are claims handled? An extended warranty from the manufacturer will require that you obtain service only from them. You want to look for a warranty that gives you more than one service facility to choose from.

• Is the warranty transferable? A transferable warranty is extremely attractive for prospective buyers when you sell your car.

• When will the auto warranty expire?

Purchasing an extended warranty is best around the time you first buy your car. Many car buyers may opt to wait until the manufacturer's standard warranty expires. However, the cost for coverage rises as the vehicle ages and accrues mileage. If you buy an extended warranty sooner rather than later, coverage costs will be lower.

To purchase your cost-effective and sensible extended warranty, use the power of the web. According to J.D. Powers and Associates, third-party warranties, such as those found at reputable companies online, score very highly when it comes to ease of use. Additionally, they are often less expensive, and offer broader coverage. Find your perfect warranty by utilizing sites such as WarrantyDirect.com, where you can compare prices, coverage and full contract details.

Learn more about other problems and opportunities presented with automobile purchasing and financing with our continuing series, including steps to leasing new cars, buying used cars, financing options, types of loans and leases, and more. 

A frequent contributor to ERATE® since 2006, Amy Lillard is a freelance writer specializing in turning complex information into useful tips and tricks for readers. For questions or topic suggestions, contact Amy at [email protected].

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Choose Your State Below

Start by selecting your state

Select Your State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming