Vehicle service contracts (VSCs), aka extended car warranties, can cover the cost of pricey repairs to your car after its factory warranty expires. But not all warranties are created equal – and taking your time to pick the right one can make the difference between helpful coverage and an expensive gamble.
Here are the 10 key steps we recommend taking before signing a vehicle service contract.
10 steps to find the best extended car warranty for you
1. Check the company’s reputation. Read customer reviews and verify that the company has a solid track record with the Better Business Bureau (BBB). Search for Federal Trade Commission (FTC) actions and whether the company is registered to do business in your state. Not all warranty companies are the same, so take time to compare. Customer experiences on Reddit can help you get a more informal sense of red flags and helpful tips.
2. Identify the ‘obligor’ and ‘insurer.’ A reputable company will list the obligor (the company responsible for paying claims) and insurer (usually an insurance company) to back unpaid claims. Research the financial stability and complaint history of these companies, too.
3. Compare multiple quotes. Request quotes from several providers to find the best value for your budget and vehicle. Read the sample contract to understand exactly what’s covered.
4. Review exclusions carefully. Know what’s covered and what isn’t, such as damage to a covered part by a non-covered part, and vice versa. Determine what coverages are optional at an added cost, and make sure you aren’t paying for coverage you don’t need.
5. Ask about claim procedures. Understand where you can take your car for service, pre-authorization requirements and how emergency repairs are handled.
6. Confirm transfer and cancellation terms. Can the contract be transferred if you sell the car, and is there a fee? Can you cancel and get a refund, and what will that cost?
7. Evaluate deductible and payment structure. Look for wording that differentiates between per-visit or per-repair deductibles (Some repairs may require more than one visit). If you have a preference for monthly payments or paying upfront, make sure the company has that option.
8. Check whether coverage differs in your state. To operate in a state, the company may have to meet certain requirements. Usually, a sample contract lists differences by state.
9. Know payout limits. Most extended car warranty companies set a maximum they will pay per repair visit and for the life of the contract.
10. Look for value-added extras. Most plans include some combination of services with the VSC – roadside assistance, trip interruption, car rental and more.
How to spot an extended car warranty scam
Unfortunately, extended car warranty scams are common. Here are some red flags to watch for:
High-pressure phone calls demanding immediate action.
“Warranty expiration” notices or mailers that aren’t from your car’s manufacturer.
Companies that are unwilling to share sample contracts.
Requests for payment before providing specific plan details.
Too-good-to-be-true pricing with no exclusions.
A high volume of bad online reviews or unresolved BBB complaints.
How much should an extended car warranty cost?
The amount you pay for a vehicle service contract depends on the company and other factors. Typical contracts range from about $40 to well over $100 monthly, plus the deductible for repairs. You may get a discount for paying in a lump sum upfront.
Here are the factors that impact your total:
Vehicle make, model and mileage – More-expensive or high-mileage vehicles cost more to cover.
Coverage level and term length – Comprehensive, longer-term plans carry higher premiums.
Deductible – A higher deductible lowers premiums but increases out-of-pocket repair costs.
Location – Labor and repair rates vary by region, so where you live can affect your contract cost.
Provider – Costs vary by provider, with one difference being whether the company is a direct provider or broker. Direct providers sell and administer their own contracts and may have lower markups. Brokers sell plans administered by other companies, so they may have more options to lower costs.
How about shopping for used car warranties?
Used cars with higher mileage can be more prone to mechanical issues, making an extended warranty more appealing. However, extended warranty companies don’t typically offer the same coverage or pricing for older cars.
Here are a few extra steps to take when shopping for a VSC for your used car:
1. Check if your car has any of the manufacturer’s warranty remaining and whether it will transfer to you. If it does, wait until it’s closer to expiring to buy an extended car warranty so you’re not paying for double coverage.
2. Compare the VSC cost with your car’s value. Some vehicles may not be worth enough to justify monthly coverage, especially since warranty companies view older vehicles as higher risk and may charge higher premiums and deductibles.
3. Check waiting periods. Many used-car warranties don’t cover pre-existing conditions. You may have a waiting period of 30 to 90 days or a certain number of miles before any repairs are covered.
4. Negotiate, if possible. Depending on the warranty provider, you may be able to negotiate for a better price or added benefits at no cost. Make sure to let providers know that you’re shopping around for coverage.
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About the author
Dalia Ramirez writes about home and car services for NerdWallet. She has previously written about estate planning, cryptocurrencies, small business software and other personal finance topics. Dalia has a B.A. in science and technology studies from Wesleyan University. Her work has appeared in publications including The Washington Post, the Los Angeles Times, Bloomberg and The Associated Press. She is based in San Francisco.
