Extended warranties on cars are a means to avoid expensive replacement and repair costs after the manufacturer’s warranty expires. Extended warranties are called by different names such as mechanical breakdown insurance, service agreements, extended service contract, and vehicle protection plans. Car dealers present this as an add-on when a car sale is being negotiated. Before considering purchasing a warranty, keep the following in mind:

● Is the warranty covered by the manufacturer, the dealer, or by a third-party company?
● What does the extended warranty cover (i.e., breakdowns, only major parts, or bumper-to-bumper)?
● How much is the extended warranty?

Here are the pros and cons of purchasing an extended warranty:

1. You may never use it
Many of today’s cars are reliable and may not have breakdowns even after the standard 2- to 3-year manufacturer’s warranty. Yet, consumer studies have shown that owners’ whose cars do not score high on the “reliability” index have benefited from having subscribed for an extended warranty. However, owners of reliable cars seldom used their extended warranties, as their cars had no or very few breakdowns.

2. Fixing technical components can be pricey
The quality and reliability of cars have improved over time. One factor that drives this improvement is the use of new technologies. There is a disadvantage here. New technology in cars will need mechanics and technicians who are specially trained to service the cars. This most often leads to higher servicing costs, both the cost of replacement as well as the cost of repairs.

3. Warranty guidelines
In most extended warranties, conditions prevalent in the manufacturer’s warranty are carried forward. It is incumbent upon the owner to run and maintain the vehicle as per the manufacturer’s instructions. These conditions may include:
● Getting the vehicle serviced by authorized service centers periodically.
● Using the recommended grades of oil and gas.
● Maintaining tire specifications.
● Ensuring that the car is run within the manufacturer’s operating limits.

4. Dealer vs. manufacturer warranties
Extended warranties are offered by manufacturers and dealerships. Insurance companies, auto clubs, and other such organizations also offer different plans. These plans vary from “bumper-to-bumper” coverage to more specific components like the powertrain that includes the engine, gearbox and drive shafts. Costs of warranties vary based on the make and model of the car and the terms and conditions of the warranty. It has been observed through surveys that customers, who have bought maker-backed warranties offered through dealerships, are more satisfied than those who bought their warranties from other sources.

5. Peace of mind
A good extended warranty has many added features like round-the-clock roadside assistance, complimentary towing, meal, and lodging reimbursement if you are stranded away from your place of residence, and in some cases car rentals too.