5 Things you need to know about A Car Extended Warranty

By: Mike Davenport - Chevy Dude   |   01 Aug 2022
Are extended car warranties worth it?

Yes, there are a lot of strong opinions on extended warranties

Do you need them?

Are they worth it?

Do you need the bumper-to-bumper warranty or the powertrain warranty?

Are they a scam? a lie? A profit center for the dealership?

These are all questions we’ll answer in this post!

If you want a video to go along with this post, check it out here.


Two Types of Extended Warranties

There is an exclusionary warranty, and there’s one called stated coverage.

That’s it; there’s nothing more out there!

Exclusionary Warranty

An exclusionary warranty is typically sold on new cars or cars still under factory warranty.

That could be the bumper-to-bumper warranty and some will give you the powertrain warranty under the exclusionary warranty.

The Exclusionary Warranties are the most straightforward warranties because they are precise: and restrictive. They will tell you what is not covered, which is uncommon in warranty contracts.

what does an extended warranty cover

This box is a great example of one of our extended warranties, which includes everything from theft and damage coverage to roadside assistance and basic maintenance.

The Exclusionary Warranty is the technical term of the contract, but they may be called something different on the dealership level.

The most common name would be New Car Coverage.

Stated Coverage

The second type of coverage is called Stated Coverage and could pose with many different names

I own a car dealership and there’s no bumper-to-bumper warranty on any of my used cars, so when I sell them, I have stated coverage!

Other names for stated coverage are: used car coverage and powertrain coverage, which used car coverage is going to tell you exactly what is covered on it there’s no exclusionary, there’s nothing here that says what is not covered.

That’s exactly how state coverage works. It just tells you the basic parameters that will be covered, and everything else will be handled on a case-by-case basis, typically by your service department or your body shop.

Yes, that is the stated coverage as well. They’re junk number one. You’ll never claim them, and if you try to claim them, they’re probably gonna deny you. So you don’t really need them. They’re just another profit center for the dealership!

Now, I’m not saying that every dealership is going to do this, but typically you’re probably not going to get anywhere with stated coverage!

“But Mike, what about certified pre-owned as a stated coverage ?”

It’s a big misconception that most car salespeople make when attempting to sell you on a certified pre-owned warranty: They claim that bumper-to-bumper is a made-up phrase from the dealership if you look at a brand new 2022 automobile right now.

Now, no automaker in the world states bumper-to-bumper on the window sticker because it doesn’t say anywhere!

So when your car salesman or dealership is telling you that the dealer makes this phrase “bumper to bumper.”

They are misleading you!

Pros & Cons of Extended Warranties

Let’s talk about the pros and cons of extended warranties:


I’m a firm believer in purchasing an extended warranty.

I believe the greatest benefit of a pro is that it locks in today’s rates, which may save you money over time.

So I think the most important thing about a long warranty is that it guarantees your present rates for two or three years from now.

My previous dealership has not seen a price increase in over two years, and because we’re still here in 2022, we’re seeing prices of timber going up and automobile costs increasing. Everything is rising in price throughout the world.

So right now, if you decide that an extended warranty is right for you, you may be locking in prices from a year ago, two years ago, or just currently today, so that’s a big benefit, I think!

Another big advantage of purchasing an Extended warranty is that you know exactly what your repair costs will be throughout the duration of your extended warranty!

Man Fixing Vehicle Engine

When you spend $2,500 on a warranty, you know it will last anywhere from five to seven years, depending on the circumstances.

The exception is if you spend three thousand dollars or more on a warranty, in which case it might be ten years before you spend another penny except for maybe a tiny deductible.

There are a couple of deductibles you need to be aware of.

Deductibles you need to be aware of

One is a stated dollar amount that you have to pay per repair order, not per broken item.

So if you walk into the dealership and say, “Hey, I have this broken [item], this broken [item], and this broken [item],” it’s all in one repair order.

You pay one deductible.

If you walk in three different Instances and put it on three different repair orders, you have three deductibles that you have to pay.

The other one is called a reducing deductible.

So a reducing deductible is a benefit to you and the dealership; you have a stated dollar amount deductible at every dealership in the country except the dealership you bought it from.So the dealership gets something, and you get something as well.

Man in Plaid Shirt and Man in Working Clothes Looking at the Papers

The benefit to the dealer is that you return to the dealership to have your repair completed, while the advantage for you is if you go to that dealership, you will not incur any costs.

Tell me, how can I ever promise a car’s repair cost in five years?

Your insurance company will reimburse you for most repairs.

You don’t have to pay anything out of pocket until the deductible is reached.

This makes it nice because you can get reimbursed almost immediately after a repair order is placed.

However, most extended warranties come with deductibles that must be paid before your policy’s proceeds can be released to you.

Because that’s the most common deductible, you’ll only do 50 or 100 deductible because that’s your out-of-pocket cost.

So if you’re traveling somewhere and your car breaks down, it’s covered correctly.

In addition, they’ll usually give you $75 for a night in a hotel, food, and other expenses.

It isn’t much money, but it’s really nice that they reimburse you.


The CONS of Dealer Warranties

Will you ever need it?

The most popular is that you will never need it, but we waste money on things at the gas station, homeowners insurance, and automobile insurance every day.

We hope that we do not need to utilize homeowner or automobile insurance, but we spend much more money on it each year or over five years than we would ever spend on an extended warranty.

So the biggest one is that YOU MANY NEVER USE IT!

But I think that’s a risk I’m willing to take because these cars are expensive things that get outdated. They don’t repair very easily, speaking of expensive parts, and extended warranties can be expensive. We’re going to talk about the average price of extended warranties

here in a second, but they can be expensive, especially if you’re looking at BMWs Mercedes. You may be talking about some of these cars, and I’ve seen this 10 000 for an extended warranty

Average Price of Extended Warranties

How to Finance A Car Without Losing Money - MacDev Financial

At that point, I probably would never buy one, and I don’t think I’ve ever sold one that expensive, but they can get expensive on the contract depending on the car you buy

I got this lesson in 2008 and 2009, and I’m willing to bet there’s no one else out there talking about warranties like this going out of business.

Most warranty providers are third-party businesses since they profit from it, but that firm may go bankrupt and shut down.

At that time, that piece of paper on which your extended warranty is written is virtually meaningless!

Beware of Warranties Expiration

So, you must be concerned about warranties expiring, but because of the 2008-2009 era.

I’m not aware of any big firms shutting down, but do some research on the business that the dealership is selling and, if the manufacturer backs it, you shouldn’t have much to worry about.

Let me be clear: new vehicle warranties are always subject to debate and speculation.

I’m suggesting you buy it when the car is delivered because we do have some overlap if you get a six or seven-year warranty.

The manufacturer will cover the first three years, not the extended warranty, and that’s 100% true, but the coverage will overlap under certain circumstances.

Purchase at the time of delivery

It is possible to purchase a warranty when you take delivery of your car, and in some cases, it may be beneficial to do so

If you’re financing the car and you have a pre-agreed monthly payment amount – or perhaps even less monthly

However, it isn’t fair because the extended warranty company understands that the manufacturer’s first three years, 36,000 miles, are covered. As a result, they have a reduced price since they’re taking on from year three on. I always buy it at the time of delivery because of my 21 and a half years of experience inside an automobile dealership.

In other words, if I buy it at the time of delivery and something happens three years later – guess what: I’m still covered by the manufacturer for another two and a half years.

The warranty company may come back and say that they will not cover their portion. But the manufacturer still has an obligation for two and a half years to cover something.

Cost of Extended Warranty

So, let’s talk about the average cost of an extended warranty.

And I’m about to tell you but before I do, let me put this number out there.

Buying an extended warranty for $800 and spending five hundred dollars on your vehicle payment or six months of payments is a great price. And in fact, the average cost of an extended warranty is around $500.

The average cost for an extended warranty on a typical car is between $2000 and $4000, but costs could go up to $8000 for high-end vehicles like the Mercedes Benz, BMW, Lexus, etc.

The price of an extended warranty varies according to the make and model you purchase. So it’s a good idea to compare warranties and prices before agreeing to buy one. You’ll find that most vehicles.

You’re going to see much higher prices for BMW, Mercedes Benz, and Audi. I’ve seen Audi’s go as high as $10,000!

Rest assured that I’ve never sold a ten thousand dollar warranty, but I have sold four and five thousand dollars warranties on certain luxury automobiles to give you an idea of what it might cost you.

Because I sell a lot of Corvettes, if I sell one of my clients a 10-year 125,000 exclusionary warranty, the premium is just $3,800. So yes, for ten years, your budget is $380 per year. You’re most likely looking in the mid-to-late-2000s for a Silverado or equivalent vehicle.

How to negotiate these warranties

Let’s talk about dealing with these warranties since they might be challenging. But, first, there’s an art to negotiating these service agreements, and you must realize that.

Extended warranties can be purchased if the person in charge of selling service contracts is a finance manager,

The first thing they’re going to do is present you with a piece of paper similar to this one right here.


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