How auto warranties actually work and how to figure out if it’s worth it for you

You’re a few hours into your family vacation when your least favorite light illuminates the dash.  For the third time since your dealership warranty ended, the ‘Check Engine Soon’ light has gone off. It’s as if these guys have the lifespan of a car timed perfectly – but we digress.

After stopping by a local garage, the mechanic says its the O2 sensor – goodbye, $400! With a sizable chunk of cash missing from your bank account, you may have to cut out that trip to the amusement park. Don’t you wish you could avoid situations like these? You can, as it’s possible to continue warranty coverage once your dealer coverage lapses. In this article, we’ll show you how auto warranties work, and how to choose the firm that’s right for you.

What is an auto warranty?

An auto warranty (click here for auto warranties in Florida) is a service contract that covers unexpected vehicle maintenance. In return, you pay a monthly/annual premium, plus a deductible when an approved garage services your car.

How does it work? Let’s say everything is going fine, when out of nowhere, your engine light comes on. Instead of finding a mechanic straight away, you call up your auto warranty firm. After a few preliminary questions, they accept your claim and direct you to an approved dealer in your area. Once you approve the work order, the auto warranty firm may charge you a deductible. Aside from that, you put your feet up as technicians repair your vehicle.    

Why is it a good idea to get an auto warranty?

Remember the first few years you owned your car/truck? If they had any issues, you didn’t sweat it. Apart from wasting part of a day at the dealership, repairs didn’t cost you a dime.

A couple of months ago, though, your dealer warranty expired. So far, it’s been clear sailing – but for how long? When something inevitably goes wrong, how much is it going to cost you? $200? $500? $1,000 or more? A generation ago, these amounts were less worrisome. Back then, people made enough money to save up a buffer for emergencies. Those days are long gone – according to the Federal Reserve, 40% of Americans can’t afford a sudden $400 expense.

In this economic environment, the more predictable your finances, the better off you’ll be. Auto warranties replace shocking expenses like $600 fuel line repairs with a consistent monthly payment. Aside from a small deductible, there’s no additional cost.

When does it not make sense to get an auto warranty?

Like any product or service, auto warranties aren’t for everybody. When should you pass on getting one? For starters, make sure you aren’t already covered. As we alluded to in the last section, many vehicle owners get their ride from a branded dealership. These vehicles usually carry automaker warranties that last 3-5 years, or 36,000-50,000 miles, whichever comes first. However, check the fine print associated with your vehicle’s purchase  – it may be close to expiring, or you might not have a warranty at all.

If you have a warranty already, it doesn’t makes sense to get another while you’re still covered. But, what if you bought your vehicle from a used car dealership, or via a private sale? It all depends on the vehicle’s age or its current state of repair. According to Consumer Reports, the annual cost of maintenance balloons as the years tick by. For example, in year three of owning a Toyota, you’ll spend about $50 on repairs. By year ten, you’ll be shelling out $420 annually.

But they’re far from being the worst performer. Volvos cost $65 in their third year, but $895 by their tenth. Unsurprisingly, luxury sedans top the list. BMWs hold up well in their early years, costing $10 in year three. By year ten, you’ll be spending $1,125 on average – oof!

If your vehicle just rolled off the lot, but it doesn’t have a warranty, you can probably do without one for a few years. However, if you just bought a used car with six-figure mileage, the annual warranty cost may end up being lower than the annual repair cost.  Aftermarket auto warranties can cost anywhere between $400/year for cheaper models to $2,000/year for luxury cars. However, even if their expense runs close to actual maintenance costs, getting an auto warranty may still be worth it. Thanks to the consistency of auto warranty premiums, unpredictable vehicle expenses will become a thing of the past.   

How can I find a trustworthy auto warranty firm on my own?

For every honest dealership, there’s one that pedals lemons. The same applies to auto warranty firms – some adjudicate claims fairly, while others deny them for arbitrary reasons.

How can you tell the good actors from the bad? Start by identifying auto warranty companies that serve your area. Once you’ve assembled a list, vet them using sites like Trustpilot. In Florida, Concord Auto Protect and CarShield are two options that rank well, with scores of 7.9/10 and 9.5/10, respectively. Read through several pages of reviews, focusing on 4, 3, and 2-star reviews where possible. Don’t rely on 5 and 1-star reviews for useful insights, as these are often mindless raves and rants.

Once you have a shortlist of finalists, contact each firm and ask them for a quote and their terms & conditions. The quote will help with budgeting, while the T&Cs will contain exclusions/coverage caps/legalese that could make or break a deal.

Finally, call up the winner and make a deal.

Do attempt to negotiate changes to coverage or pricing, though, as maximizing value is the name of the game.

Don’t fly solo as your car ages

Just because your car is in excellent shape now doesn’t mean it will continue to do so. Wear and tear takes its toll over time, and for some vehicles, everything can fall apart at once. By acquiring an aftermarket warranty, you can prevent expensive repairs from throwing a monkey wrench into your household budget.