What are the differences between a manufacturer’s warranty and an extended vehicle warranty or service contract?

A manufacturer’s warranty generally covers manufacturer defects or failures for a period of time after purchase and is automatically included when you purchase the vehicle. Extended warranties are an optional add-on product that covers defects or failures that are not covered by the manufacturers’ warranty. Service contracts or prepaid maintenance plans are additional add-on products that cover regular maintenance or other service needs.

There are several important differences between a car’s manufacturer warranty and an extended warranty or service contract.

Manufacturer’s warranties

Warranties are typically provided by auto manufacturers when you purchase a new car or vehicle. These warranties will cover certain issues due to defect or failure, and last for a certain period of time or up until a specified number of miles have been driven. These warranties may also cover used cars if the time or mileage limits haven’t yet been reached. They generally do not cover the cost of routine maintenance or parts that wear due to normal wear and tear, or abuse.

Extended warranties

Extended warranties or service contracts are optional add-on products often sold by dealerships for an additional cost. Extended warranties are optional add-on products that cannot normally be required, and the cost can be negotiated when you purchase your vehicle.

These warranties provide protection on certain mechanical and electrical components not covered by the manufacturer’s warranty, but they typically exclude routine maintenance, such as oil changes and tire replacement. They can be expensive, and the coverage varies. You may also be able to purchase them after you purchase the car from the dealer or a third-party. The products often have eligibility restrictions and based on a consumer’s individual circumstances, may not provide value.

When deciding whether to purchase an extended warranty, you should review the contract carefully and consider the following:

• The cost of the extended warranty - you should negotiate the price
• The length of the extended warranty
• What types of problems or repairs are covered
• What problems are not covered
• How you plan to use your vehicle

Finally, check whether the coverage of the extended warranty or service contract overlaps with the problems and time periods the manufacturer’s warranty covers to avoid paying for unneeded coverage. You may find that any additional coverage is not worth the additional cost. Read more about extended warranties and service contracts from the Federal Trade Commission .

Service Contracts and Prepaid Maintenance Plans

Service contracts and prepaid maintenance plans spread the cost of expected maintenance services over time, rather than paying for them as needed. These are optional and may be offered to you at the dealer along with other optional products. The plan may require you to take the car back to the dealer for service rather than to a mechanic of your choice, which may be inconvenient and expensive. You should understand what they cover and determine whether the cost of paying for these services yourself might be cheaper. You may also be able to set aside money every month to pay for maintenance or repairs.

You have the right to cancel these add-on products at any time and reduce your costs

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about auto loan negotiation

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