Are Extended Car Warranties a Scam?

Millions of Americans have received automated phone calls that ask about their vehicle’s extended warranty – some have even gotten them more than once a day. This may leave you wondering: Are extended warranties a scam? 

In this article, we’ll discuss ways to identify legitimate and scam extended warranty companies, as well as the reasons you might want to consider extended coverage. We’ll also recommend some of the best extended car warranty companies in the industry so you know which providers to trust when you’re looking for vehicle protection. 

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What Is an Extended Warranty?

An extended auto warranty is an agreement that covers the cost of vehicle repairs after your original manufacturer’s warranty expires. Depending on the contract, it may not be a carbon copy of the bumper-to-bumper and powertrain warranty coverage you received from the dealership, but it should include most of the same parts. 

The term “warranty” is a bit misleading, as according to the Federal Trade Commission (FTC), a warranty must be included in the price of the product. Extended warranties, whether purchased from an automaker or a third-party company, are actually vehicle service contracts, which function essentially the same way as a vehicle’s factory warranty. 

A factory warranty is designed to repair or replace any defective parts and usually covers parts within the engine, drivetrain, climate control systems and more. It’s also common for manufacturers to fold in services like roadside assistance or cover the first year of vehicle maintenance.

Some parts of the vehicle aren’t backed by a manufacturer in an extended warranty. Here are some common exclusions:

• Exterior trim
• Interior upholstery
• Wear-and-tear parts like brake pads and wiper blades
• Damage caused by the environment (floods, fires, hail, tree sap)
• Damage from a collision
• Damage from abuse or neglect by the car owner
• Damage from improper repairs

Why Would I Want an Extended Warranty?  

When weighing the pros and cons of extended car warranties, look at what you get from the provider and compare that to the overall reliability of your vehicle. Even though a protection plan may look like a good idea on paper, owning a dependable car may mean not using your protection enough to justify the cost.

Plenty of cars function well beyond 100,000 miles, which is great if you plan on keeping your car after your factory warranty expires. But as cars age, they become much more likely to break down. If you’re unable to pay for unexpected repairs, you may be stuck without reliable transportation when your car breaks down.

Avoiding Costly Repairs

One of the main draws of an extended warranty is avoiding paying for car repairs out of pocket. If you’re worried about your vehicle’s reliability, and having something like the transmission fail would be a financial hardship, then an extended warranty can offer some peace of mind. 

When you decide to purchase an extended warranty, you can typically choose your deductible, or the amount you’ll need to pay out of pocket per repair. The size of a deductible you choose will factor into the overall cost of a warranty. Common amounts for warranty deductibles range from $0 to $200. Similar to car insurance, a higher deductible will usually give you a lower premium, but you’ll also have to pay more when making a warranty claim.

It’s important to note that an extended warranty will not cover all vehicle parts. One of the most common complaints people mention when claiming that a warranty company is a scam is that their contract didn’t cover a repair they thought it would. To avoid finding yourself in this situation, make sure to read the fine print of a service contract before making a financial commitment.

Additional Perks

Besides taking the hassle out of car repairs, the perks of having an extended warranty can be useful in the event of a breakdown. Often, services like towing assistance, rental car reimbursement and trip interruption assistance are included with the price of a warranty. These can be great assurances if you find yourself stranded, whether you’re on your way to work or on vacation.

How Can I Tell If an Extended Warranty Is a Scam?

If you’re unsure about purchasing an extended warranty or are concerned about the company that’s trying to sell you one, here are some quick ways to see if what you’re being offered is legit.

Dealership Warranties

One of the first places that will try to sell you an extended warranty is the dealership. A salesperson may ask if you want to include the cost of the extended warranty in your vehicle’s financing. In that case, ask if you can get zero-percent or low-interest financing. Otherwise, you’ll be paying interest on the contract before the car’s factory warranty has expired. 

Keep in mind that opting for a dealer’s extended warranty will get you access to genuine parts and technicians trained to work on your brand of vehicle, but that usually comes at a premium cost and limits you to having repairs done at the dealership.

Warranty Phone Calls and Mailers

Phone calls or letters in the mail about your car’s extended warranty have become rather infamous in recent years. Getting messages from telemarketers, or the dreaded automated “robocalls,” for most people results in a call ending instantly. 

Unfortunately, there are plenty of auto warranty scams that try to take advantage of customers by posing as car dealers, manufacturers or insurance agencies. People that fall prey to these scammers usually find that after purchasing a warranty, their service requests go unanswered. 

One bogus company was so rampant that in 2016, the FTC mailed out nearly 6,000 refund checks to the tune of over $4 million to scam victims. The FTC says that people that respond to these robocalls or mailers are subject to high-pressure sales tactics and that a legitimate business should allow you time to consider an offer and supply written information about your contract before you make a purchase.

Checklist for Buying an Extended Warranty

If you’re thinking of buying an extended warranty, here are a few things you should keep in mind:

• Your car’s reliability: If you drive a car that has low repair costs, you might be able to forgo buying an extended warranty. Check sources like RepairPal and J.D. Power’s vehicle dependability studies to get an idea of how often your car may break down.
• How you found the company: Did you come across an extended warranty provider while researching used car warranty companies, or did you receive a cold call with an urgent message about your car’s factory warranty? If it’s the latter, you could be facing a scam.
• Review a company’s ratings: The Better Business Bureau (BBB) can give you a sense of how well companies respond to consumer complaints. It rates companies on a scale from A+ (best) to F (worst). Customer review sites like Trustpilot are also good to check.
• Ask questions: Learning as much as you can about a company before making a financial commitment is crucial. See how the warranty claims process is handled, where your car can be serviced and whether the company will be handling your warranty directly or works with a separate contract administrator. Also, ask to see a copy of your contract before you sign it so that you know exactly what is and is not covered.

If Necessary, File a Complaint

If you feel like you’re being harassed by or have been called by a shady warranty company, you can contact the appropriate federal agency. The Federal Communications Commission (FCC) recommends that you don’t give out any of the following information until verifying you’re dealing with a legitimate business: 

• Social security number
• Credit card information
• Driver’s license number
• Bank account information

The FCC reviews complaints about potential scam calls, as they may violate telemarketing and robocall standards. Keep in mind the FCC doesn’t award individual damages to consumers – it’s more a regulatory agency that can fine companies who are violating federal law. 

If you think you’ve been the victim of fraud by a business, you should contact the FTC. It may be able to get you a refund or at least investigate the legitimacy of a business so that other customers aren’t scammed in the future. 

Our Recommendations for Extended Auto Warranty Companies

While auto warranty scams have given the industry a bad name, there are a number of reputable extended car warranty companies out there. Besides taking standard precautions like researching warranty providers, comparing quotes from multiple companies can help you find the best prices. In our own research, we’ve found that Endurance and CARCHEX are two trusted providers in the industry.

Endurance has a reputation for customer service, comprehensive vehicle coverage and competitive prices. Drivers can choose from six coverage plans that last up to 8 years or over 200,000 miles and range from basic powertrain to bumper-to-bumper coverage.

In addition to repairs, Endurance includes roadside assistance, tire replacements and concierge services with each contract. It offers service in all states except California. You can learn more about the provider’s warranty plans in our Endurance warranty review.

CARCHEX offers warranties in all 50 states and has an A+ rating from the BBB. It has five coverage models, some of which cover vehicles up to 10 years or 250,000 miles. Drivers can also choose deductibles ranging from $0 to $200. Read our in-depth CARCHEX review to learn more.

FAQ: Are Extended Warranties a Scam?