Should you get an Extended Warranty on a Pre-Owned Car?

Valerie Raskovic

Mar 18, 2025

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When considering the purchase of a pre-owned car, one of the most significant decisions is whether to opt for an extended warranty coverage. While extended warranties can provide peace of mind and potentially save money on major repair bills, they also come with their own set of drawbacks. Through our collective experiences we want to share and expose the truth about extended warranty industry so you can make an informed decision. 

Our general opinion of used car extended warranty is not very positive as the industry can sometimes feel entangled with a web of deceit and unsavory practices. One of the main reasons we feel this way is based on how the extended warranty sales are structured. We hate the fact that there is no transparency in the sales process.

Many used car buyers may not be aware that dealers are highly incentivized to sell used car warranties and get paid handsome commissions on each sale. In some scenarios they may even get paid commission based on the amount they sell the warranty for. This means that the dealers are free to make up whatever number they want and charge the customer for the warranty.

These types of kickbacks are not the only financial incentives or commissions paid to dealers by extended warranty companies for each policy sold. Incentives can take various forms, including direct payments, bonuses or even more favorable terms for the dealer's own business. The practice is designed to motivate dealers to push extended warranties on their customers, often regardless of whether the warranty is in the best interest of the buyer. This is the main reason why we cannot issue a glowing review of the pre-owned vehicle warranty industry however, we realize not all preowned car warranty companies are created equal and there are some cases where the warranty can genuinely help the consumer save some money on repairs.

In an effort to present the issue from all angles we have outlined some of the potential benefits and the very real drawbacks of getting and extended vehicle warranty.

Benefits of an Extended Warranty

1. Financial Protection:

• • Big Repair Bills: One of the primary advantages of an extended warranty is the financial protection it offers. Major repairs, such as engine or transmission issues, can be extremely costly. Some extended warranties can cover these expenses, potentially saving you thousands of dollars. However, be sure to read your extended car insurance warranty contract prior to signing as many car warranty companies cap the repair coverage per visit or issue.
  
  
  • Peace of Mind: Knowing that you have coverage for unexpected repairs can potentially reduce stress and provide a sense of security, especially if you plan to keep the car past the factory warranty period.

2. Enhanced Resale Value:

• • Resale Value: A car with an extended warranty can be more attractive to potential buyers when you go to sell your car, which might help you get a better price. However, not all used car warranties are transferable, so this benefit only applies to those companies and policies that allow the coverage to carry over to the new buyer.

3. Regular Maintenance:

• • Maintenance Incentives: Some extended warranties include regular maintenance services, which can help keep your car in better condition and potentially avoid major issues. However, be weary of potentially hidden costs and deductibles.

Drawbacks of an Extended Warranty

1. Coverage Limits:

• • Per Repair Limit: Many extended warranties have a limit on the amount they will cover per repair. A common cutoff is $1,000, which means you might still have to pay a significant portion of the repair costs out of pocket.
  
  
  • Deductibles: Many extended warranties require you to pay a deductible for each visit to the mechanic. This can add up over time and reduce or in some cases even eliminate any of the savings.

2. Compensation Process:

• • Insurance Payment: Getting the insurance to pay for repairs can be a grueling process. Some insurance companies require the individual to pay upfront and then submit invoices for compensation. This can be both time-consuming, stressful and financially straining.
  
  
  • Time and Effort: The process of submitting claims, waiting for approval, and dealing with paperwork can be tedious and time-consuming.

3. Coverage Exclusions:

• • Exclusions: Not all repairs are covered. Some warranties exclude certain components or types of repairs, which means you might still face unexpected repair costs.

4. Cost of the Warranty:

• • Premium Cost: The cost of the extended warranty itself can be substantial. If you purchased the warranty through a used car dealer most likely you are also paying for the additional markup added on by the dealer. In many cases getting an extended used car warranty is simply not very cost-effective option.  Depending on the coverage and the car's condition, it might be wiser just finding a good reasonably priced local mechanic and pay out of pocket for repairs.

5. Service Shop Restrictions:

• • Insurance Preferred Shops: Some companies may limit or even deny coverage when you take your vehicle to a shop outside their network. This can be extremely inconvenient and problematic as the insurance company may not always pick the shop that does the best work. The issue is that we do not know how these insurance companies’ vet preferred shops. The general consensus is that repair shops are selected based on the special reduced hourly rate or lower repair-based rate they agree to charge for insurance work.

Making the Decision

As has been our experience in most cases you are better off not getting an extended used car warranty but ultimately, the decision to purchase an extended warranty on a pre-owned car is yours. To help streamline the decision-making process, we have outlined some factors:

1. Individual Needs:

• • Budget and Risk Tolerance: Consider your financial situation and how much risk you are willing to take. However, if you have a tight budget and cannot afford unexpected repairs, a good fully inclusive extended warranty might be a wise choice. Keep in mind there is a big emphasis on the word “good” as a good extended warranty company that covers vehicles in your local area may not be easy to find.

     

    The internet is full of fly by night car warranty companies and brokers so it can be a very growling process trying to find a good one that will actually offer good value and stand behind their promises.



• • Car Condition and Age: The condition and age of the car are crucial. A newer, well-maintained car might not need as much repair and service as an older one with higher mileage with more wear and tear. Also, consider if you plan on doing a lot of hard stop-and-go type of driving adding extensive wear and tear on the vehicle. 

2. Type of Warranty:

• • Coverage Details: The most important piece of advice is to read the fine print! Read and understand exactly what is covered and what is not. Look for a warranty that aligns with your needs and budget.
  
  
  • Reputation of the Company: Research the reputation of the warranty provider. Check customer reviews, how long they have been in business and overall customer satisfaction.

3. Alternative Options:

• • Regular Maintenance: Regular maintenance can help prevent major issues and might be a more cost-effective approach.
  
  
  • Budgeting for unexpected repairs: According to AAA an average yearly cost for car repair along with routine maintenance is roughly around $800 to $1500.  Instead of getting a used car warranty try just putting away a $100/month in a separate high yield savings account. The balance accumulated in that account will help you cover most of your yearly vehicle repairs and maintenance costs. This also comes with the benefit of saving yourself the hassle of dealing with third party warranty companies, submitting claims, waiting for payouts, dealing with unfamiliar shops and so on...

In conclusion, there are cases where an extended used car warranty can provide financial protection and peace of mind however, it also comes with its own set of drawbacks. Weighing these factors and understanding your specific needs and the terms of the warranty is crucial in making the best decision for you and your car.