As an 11.2 billion dollar U.S. business in 2010, the auto extended warranty is an integral part of automobile ownership experience for millions of Americans.

We are “Warranty Watchman”, a consumer protection site and premier source for information regarding auto-extended-warranties.


How Auto Extended Warranties Work

A Buying Guide to Saving Money and Making the Right Choice

extended warranties for convertablesIt’s easy to understand why Americans buy extended auto warranties. It’s because we want to drive our cars worry-free from expensive repair bills. We don’t like budgeting for repair expenses and we don’t want the burden of paying for an expensive repair bill either. We like to keep our cars in nice condition and we want a safe and trouble-free ownership experience, one that’s not spoiled by unexpected repairs.

A good extended auto warranty satisfies those needs.  It pays for the entire repair, including parts, labor, rental, and towing. Auto dealerships love auto extended warranties too. I’ve been told by many service department employees, “Our customers are thrilled when the warranty company pays the bill.”

If you’ve decided to purchase an auto extended warranty, what should you do next? Should you follow the suggestions and plans set forth by your local dealer, or try to find the best warranty plan yourself?

If you try to do it yourself, where would you find the best extended warranty plan? How much coverage can you get? Will it be from a credible company? Can you get a good price?

This Article Can Save You Hundreds of Dollars

extended vehicle warranty advice from warrantywatchman.comIn this article I’ll answer those questions for you. I’ll show you what type of warranties to look for and where to find them at discount prices. You’ll know how to find a safe and credible warranty company and you’ll learn how to identify the best coverage available for your vehicle. I’ll give you insight on how much the warranty plans cost and how to negotiate for the best price. You’ll be able to make quick and informed decisions about the merits of your dealer’s offering and how to get the best deal for yourself.

When you finish reading this article, you’ll know more about finding the best auto extended warranty than 99% of all customers who walk in to purchase a vehicle at your local dealership.

Factory or Aftermarket Extended Warranty Plans?

Protection from car repair billsStart by choosing from two categories of extended warranty plans: factory or aftermarket. GM, Ford, and Chrysler offer the primary factory plans—the “GM Protection Plan” (GMPP), “Ford Extended Service Plan” (ESP) and “Chrysler Service Contracts.” Aftermarket extended warranty plans are not affiliated with an auto manufacturer and are usually insured by companies like Allstate, CNA, GMAC, and Protective.

Many dealerships prefer working with their factory programs, particularly if your breakdown is not near your local dealership. Let’s say you are on vacation with your family and your Ford 500 sedan suffers a transmission failure several hundred miles away from home. Any Ford, Lincoln, or Mercury service department in the US and Canada will have your name in the Ford database and will start repairing your vehicle without delay. You’ll get the same service with the GM and Chrysler factory plans too. Dealership service writers and mechanics prefer working with their manufacturer warranty plans because they are familiar with the factory’s procedures. With the factory plans, the repair process usually goes smoothly. This gets you back on the road sooner.

Aftermarket Plans Have Their Advantages

The main benefit to purchasing an aftermarket warranty plan is lower cost to the consumer. Because competition is stronger for aftermarket plans, prices can be lower for extended warranties, particularly on higher mile vehicles. With the lower price, consumers are able to upgrade their coverage level compared to a similarly priced “factory” extended warranty plan.

Some Dealers Like the Aftermarket Plans Too

Many new car dealerships who offer aftermarket warranty plans as a first choice do so for the additional profit opportunities. Unlike the factory plans, aftermarket warranty plans are known to pay higher labor rates for their mechanics and retail parts pricing for their parts department. In addition, many insurance companies offer special investment programs to make their aftermarket plans more enticing for the dealers to offer to their customers.

Buy at the Dealership or Shop Online?

A majority of auto shoppers buy their auto extended warranty at the same place they purchase their automobile. But today, you can find both factory and aftermarket extended warranties online at discounted prices.

If you’ve decided on a factory warranty plan, buying it online is probably the right choice. Since all franchised dealerships from one manufacturer service the identical factory extended warranty plan, shopping online to save money makes good sense. GM, Ford, and Chrysler have authorized dealerships to sell online and to assist you with discount pricing. These outlets can help you avoid overpaying at your local dealership.

Remember, factory-plan online outlets can only provide extended warranty plans to your vehicle if you have a portion of your full-factory warranty remaining. If the full-factory warranty on your vehicle has expired, an aftermarket extended warranty plan from a good local dealer who runs a credible business and cares about customer service should work well for you. If you feel your dealer’s warranty plan prices are too expensive, just say NO. Several good aftermarket and factory warranty programs are sold online at discount prices.

How to Find a Good Company

Since you’ll be putting your trust in a warranty company for several years to come, it makes good sense to be certain your company will remain in business to honor their agreement. If you are purchasing a factory-backed warranty plan, you can be sure of financial stability and operational integrity. Factory plans have the financial staying power you’ll need for years to come. More about factory plans.

If the lower price of a good aftermarket plan interests you, make sure the company has credible insurance backing. The insurance company’s name and contact information will be clearly written in the extended warranty policy. Verify this information before you purchase. It’s also a good idea to check the insurance company’s financial rating. AM Best Reports provide financial report cards for US insurance companies. Look up your insurance company and be sure their financial rating is A+, A, or A-. Avoid aftermarket warranty plans with a low insurance rating or no insurance backing at all.

Make Sure Your Company Is Rated “A” with the BBB

If you’d like to know more about the character of your aftermarket company, the Better Business Bureau is a good source for reports of customer service and satisfaction. The BBB report rating will provide you with answers to the following questions;

1) Do customers receive prompt answers to their questions when inquiring?

2) Do customers receive efficient claims service on auto repairs?

3) How well does your warranty company handle customer complaints?

Most customer dissatisfaction from extended warranty plans originates from repairs not covered or denied by the warranty company. If you want to be certain your warranty company provides great service, look them up through the Better Business Bureau. It’s the starting place where most troubled customers express their complaints. Search the BBB here. Extended auto warranty companies with an “A” rating from the Better Business Bureau are exceptional, especially considering the nature of the auto extended warranty business. Aftermarket extended warranty companies given an “A” rating from the BBB are rare and probably safe to do business with.

What You Need to Know Concerning Coverage

Most extended auto warranty plans cover vehicles up to 10 years old. If your auto is older than 10 years, you may not want to purchase a warranty plan. Extended warranty plan prices escalate dramatically for autos over 10 years old. Since vehicles of this age continue to lose their cash value, it becomes more difficult to find a credible extended warranty plan that can be purchased at a cost-effective price. Are You Covered Bumper-to-Bumper? The two categories of warranty coverage are “exclusionary” and “stated-component” coverage. Try to acquire the most coverage available when selecting your warranty plan. With exclusionary coverage, the contract identifies only the parts or conditions that are not covered. Everything else is covered. With stated-component coverage, the contract will provide a list of parts to be covered. Any part or condition not listed is not covered. Buy the “Exclusionary” Plan With the “component” coverage plan, the list of parts shown may appear to be extensive. You may even recognize the names of some of the covered components on the chart. But with the average automobile containing as many as 15,000 parts, the actual amount of coverage with the “stated component” plan could be less than you need. Always try to buy the “exclusionary” coverage plan. Most problems incurred with extended warranty plans come from disgruntled warranty owners who suffer a breakdown on parts that were not listed as covered on their warranty plan paperwork. Except for normal maintenance, the “exclusionary” plan covers every mechanical and electrical part on your vehicle. “Exclusionary” plans cost more, but for most auto owners a good claims experience will be remembered long after the price is forgotten. Remember that exclusionary coverage is not available for most higher-mile vehicles. For autos with higher odometer readings, select the most comprehensive “stated component” program available. Options You Should Buy When buying an auto extended warranty plan, you’ll want to ask for a few of the following options: a) seals and gaskets coverage b) high-tech coverage c) wear and tear coverage d) zero deductible Seals and gaskets coverage. Most “stated component” warranty plans do not cover seals and gaskets. Purchase this option. Fixing leaking seals and gaskets is essential to maintaining proper vehicle operation. If you see a small puddle of fluid on your driveway or garage floor, have it your vehicle checked out and fixed. You may claim the repair with your extended warranty plan. Leaking seals and gaskets are the first sign of more trouble ahead. Lack of proper fluid levels causes internal parts to wear quickly or break. Be aware that any broken component due to lack of lubrication is a non-covered condition for all extended warranty plans. High-tech coverage. If you purchase the high-tech package, you get coverage of components like electrical sensors, including the ABS brake system control unit and automatic temperature control programmer. The high-tech option is usually a good value for the price. Wear and tear coverage. Parts such as tie-rod ends, wheel bearings, CV joints, U-joints, suspension bushings, and even many engine parts will wear out over time. If these parts have worn down beyond the manufacturer’s tolerances and expected lifespan and your extended warranty does not include wear and tear coverage, you will be responsible to pay for the repair. Wear and tear coverage pays for parts worn beyond factory tolerances that affect the proper drivability of the vehicle. More on wear and tear. Zero deductible. Ask your sales representative for a price on the “zero deductible” option. A deductible is the amount you co-pay in the event of a claim. Most extended warranty plans have a standard $100 deductible. If the price to add the “zero deductible” option is under $150, buy it.


What will the total price of your auto extended warranty be? First, determine how many miles you drive per year and how long you plan to own your vehicle. Next, use the information you’ve learned to locate the right company and select the correct coverage. Now you’re armed and ready to ask for free price quotes. If you’ve found a highly rated company and selected the best coverage for the longest term, don’t expect this coverage to be cheap. You certainly get what you pay for here. Read: Worth the Price? Full coverage plans for long periods of time can cost up to four thousand dollars, depending on the make and model of the vehicle. An extended warranty plan for a Range Rover will cost much more than a Chevrolet Impala. But the real cost will depend on the total dollar amount of claim payments made payable to the warranty purchaser during the warranty plan time period. If you receive more in claim payments than you paid, your cost was zero. I personally know a few Range Rover customers whose extended warranty plans paid them back more in claim payments than they paid for the warranty plan itself. How Much Do You Risk? Try estimating how much money you’d realistically expect to pay for mechanical and electrical repairs on your vehicle in the coming years without using the extended warranty plan. Now deduct that amount from your extended warranty price quote. The new value is the dollar amount of risk you incur to protect yourself against additional repairs that could happen in the years to come. Keep in mind that a new transmission or other major repair could cost you thousands of dollars. Don’t Pay Retail Price. You can and should negotiate a better price. Start by asking the salesperson for a $500 discount (more if you feel your salesperson is an aggressive seller by nature). Tell them you’re aware of many online deals available. Don’t give up easily. You may not get the full $500 off, but you’ll be setting the stage for a discount at some figure. In my experience, most dealers will happily sell their warranty plans for as little as $200-300 profit. Your Dealer Is Not the Only Provider of Auto Extended Warranty Plans. If your dealer won’t budge on the profit margin, decline their offer. In most cases, the same factory or aftermarket extended car warranties can be found online, some at deeper discounts. With a little research and effort, you will find an auto extended warranty that’s right for you and your budget. Can You Cancel at Any Time? A nice feature of all quality extended warranty plans is your right to cancel at any time and receive a prorated refund based on unused time and mileage. The best used car warranties will let you cancel the remainder of your warranty policy even if you have previously collected on a claim payment. Can You Transfer the Extended Warranty Plan Easily? If you sell your vehicle outright instead of trading it in at the dealer, you should be able to transfer your extended warranty to the new owner. This can make your vehicle more attractive and possibly worth more money. Read: Get Resale Advantages. Given the opportunity to choose between two identical used cars, your vehicle with an automobile extended warranty included will have more perceived value. Financing Your Warranty Plan Most warranty companies use Service Payment Plan (SPP) of Chicago, Illinois for their zero percent financing plan on extended warranty plans. The program offers 12- or 18-month repayment options at zero percent interest. SPP charges the purchaser a fee of up to $200 for the use of their finance plan and this fee may already be included in your purchase price from the seller. If you pay for your warranty plan with a personal check or credit card, ask your seller for an additional $200 discount.

The Final Details

If you read this whole article, you know more about finding the best auto extended warranty than 99% of people who purchase vehicles at their local dealership. You’re now able to make quick and informed decisions when searching for the right auto extended warranty for your vehicle. You can now use your new-found knowledge to get the best price and save hundreds of dollars in the process! If your car breaks down, having a good extended warranty plan can turn a feeling of anxiety into one of reassurance. It is comforting to know you can bring your vehicle to the best repair facility possible and relax while your extended warranty company takes care of the problem. Just how much is too much to pay for an auto extended warranty? These tips will show you the true cost. Your dealer is not budging on the high price – Learn what your options are from here.

Posted in Warranty Watch | Tagged AM Best, bbb, buying guide | Comments Off on How Auto Extended Warranties Work

About the authors: As an 11 billion dollar U.S. business per year, the auto extended warranty is an integral part of the vehicle ownership experience for millions of Americans.

Written by a group of industry professionals with a combined 30 years experience, is a consumer protection site and premier source for information regarding auto-extended-warranties.