When it comes to the cost of owning a car, most people are aware that car accidents, and even minor fender benders, can lead to high bills for car repairs and medical payments, which can add a big sum to the bill for car ownership. But owning a car can come with a lot more costs than that. Take, for example, your vehicle maintenance. Maintaining your car, whether it’s fixing broken parts, defects or repairing other issues, can also come at a high cost.

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Luckily, having a car warranty can help minimize the price you pay for vehicle maintenance and repairs. Car warranties are like guarantees from the dealership that certain components of your car will likely be fixed by the dealership, provided you’re meeting the time frame and mileage requirements. However, warranties can vary significantly, especially when it comes to what they guarantee. If you’re considering a car warranty, the tips below may help you navigate the ins and outs of these vehicle ownership tools.

What is a warranty?

A car warranty is a vehicle service contract wherein the provider agrees to fix parts broken due to defects in the manufacturer’s design or installation. Warranties do not cover everything. For instance, most warranties will not cover accidents or normal wear and tear. New vehicles come with a manufacturer’s warranty, which often covers the vehicle for three years or around 30,000 miles, whichever occurs first. Manufacturer’s warranties typically do not have deductibles. Car warranties taken out after the manufacturer’s warranty expires are called extended warranties. Extended warranties must be purchased independently and typically have a deductible.

Types of car warranties

There are two main types of car warranties: the manufacturer’s warranty and the extended warranty. Contracts within these categories do vary to some degree, however. For instance, one manufacturer’s warranty may cover more parts, for longer, than a competitor. It is standard for both types of warranties to cover defects and manufacturing faults, at a minimum.

Manufacturer’s warranty

Your manufacturer’s warranty is a guarantee that the vehicle is in proper working condition. This warranty is built to cover the costs of repairs and replacements if the car experiences a malfunction or breakage due to some fault on the manufacturer’s side. This type of warranty will not cover any damages you cause to the vehicle. Still, it can reimburse you for unexpected breaks or malfunctions. Manufacturers’ warranties come included with the purchase of most new cars.

Two of the most popular types of manufacturer’s warranties are powertrain warranties and bumper-to-bumper warranties. A powertrain warranty covers damages to the vehicle’s propulsion system, including the engine, driveshaft and transmission. A bumper-to-bumper warranty covers nearly everything between the two bumpers, including the powertrain and much more. Keep in mind that bumper-to-bumper warranties often do not cover items that experience constant wear and tear such as glass, seat covers and tires.

Extended warranty

Your extended warranty has to be purchased and will not be in effect until the manufacturer’s warranty on your car has expired. You can have both types of warranties at once, but only the manufacturer’s warranty will be active. After the manufacturer’s warranty has expired, the extended warranty will go into force and cover similar issues as the original warranty did. One of the benefits of extended warranties is that the customer has a lot of choice in the specifics of the product. Within extended warranties, there can be notable differences, but most will either fall under an original equipment manufacturer warranty (OEM) or an aftermarket warranty.

What is an extended warranty?

An extended warranty is a vehicle service contract that you purchase for your car. This contract can be added on top of the manufacturer’s warranty if it is still active but will not provide any benefit at this point. More often, extended warranties are purchased after the manufacturer’s warranty has expired, as they cannot be active beforehand. These extended warranties cover a wide range of damages to your vehicle but also include several exclusions.

Within extended warranties, there are two primary types: original equipment manufacturers and aftermarket warranties. The first is issued by the original manufacturer of the vehicle. In contrast, the second is sold by car warranty companies or other third parties. There can be a significant variance between different aftermarket warranties. At the same time, most OEMs stay reasonably similar in structure to the original manufacturer’s warranty.

Buying an extended car warranty is a strategic choice. If your car experiences problems because of covered damages, you can file a claim with your extended warranty. If approved, the warranty company will pay for the repairs. These payments have limits specified within your warranty contract. There will be an initial service fee with each claim you file with the company.

The strategy within all of this is to estimate how likely your car is to experience the types of problems that a warranty covers, and then to compare the cost of a contract to those repairs. If the warranty would be cheaper or close in price, it could be a strategically sound investment. If the repairs would be less expensive out of pocket than the contract, there would be little reason to purchase it.

Car warranty vs. car insurance

Both have their place, but only one is required by law. Car warranties are not mandatory while car insurance is. Your car warranty only exists to help with mechanical repairs on your vehicle. It will not help with any damages caused to others that you are liable for. Basic liability for your car, inversely, will pay for damages caused to others that you are responsible for but will not pay for any damages to your vehicle.

Of course, more extensive car insurance coverage options exist, which can reimburse damages to your vehicle. However, no form of car warranty exists that will cover damages to other cars or people. And even with full and comprehensive coverage, you may find that some breakdown of car parts still isn’t covered.

Frequently asked questions