The value of a car service warranty, also known as an extended warranty, is clear when considering the cost of unexpected repairs once your factory warranty has expired. Yet, an extended warranty isn’t ideal for every vehicle. The benefit depends on several factors: vehicle age, reliability history, the ability to pay for unexpected service work, and how long you want this additional coverage to last.

Component failure becomes a greater concern for out-of-warranty used cars that accumulate higher mileage. Generally, older vehicles may have a higher likelihood of developing mechanical issues as they accumulate mileage. A car service warranty may help reduce out-of-pocket costs for major repairs, such as a transmission replacement, which can cost more than $4,500. The challenge in determining the need for an extended car warranty comes when you have a reliable newer vehicle, or you can self-insure with a robust emergency fund.

Keep reading as we break down the vehicle service plan pros and cons.

What a Car Service Warranty Usually Means Versus Other Products

As you consider vehicle coverage, you’ll encounter different names for nearly the same offerings. A car service warranty and an extended warranty are overlapping terms. You can also add a vehicle service contract, an auto protection plan, or a vehicle service plan into the mix. These all refer to coverage separate from the manufacturer’s warranty included with a new car.

The factory warranty covers defects in materials or workmanship. In contrast, an aftermarket warranty is an agreement to pay for specific mechanical breakdowns and repairs (although some car service warranties are more expansive than others). That may seem like splitting hairs, but there are legal distinctions to be aware of.

Know that there are different purchase options when assessing whether an extended auto warranty makes sense. Many automakers sell extended warranties, which may be perceived as extensions of the original bumper-to-bumper warranty, but are technically vehicle service contracts. The manufacturer or a separate company may administer these plans. Then, there are third-party car warranty programs, which may be offered by a dealership or directly to the consumer and aren’t affiliated with the automaker.

Who Tends to Benefit Most

Your vehicle’s profile determines whether extended coverage makes financial sense. According to Consumer Reports, the risk of major repairs increases once a vehicle passes 150,000 miles. AAA reports that cars 10 years old and above are roughly twice as likely to suffer a roadside breakdown as newer vehicles.

The increasing cost of repairs must also be added to the calculation. A 2024 study from J.D. Power shows that repair costs increased by 26% over two years. Endurance Warranty Services’ internal claims data reveals that the average cost to replace a transmission is $4,650. Installing a new engine is equally eye-opening: $7,625. In addition, modern vehicles are complex, especially with drivetrains. Turbocharging, CVT transmissions, direct injection, cylinder deactivation, and all-wheel drive help with performance or efficiency, but the repair costs associated with these technologies can be significant.

Keep in mind that where you live (urban versus rural) can impact labor rates. Climate can also take a toll. Air conditioning systems are more stressed in the South, while vehicles in northern states are prone to corrosion of the suspension and exhaust system.

Your driving habits and approach to vehicle maintenance are also part of the consideration process. The average driver is on the road for almost 14,000 miles annually, according to the federal government. These commuters are more likely to encounter car troubles than those who spend most of their time behind the wheel on weekends. Meanwhile, car owners who are diligent about routine maintenance can minimize the chance of a breakdown. However, you’re at risk if you bought a car without a service history. A car service warranty may help reduce some of the financial uncertainty associated with unexpected repairs.

The extended warranty equation also comes down to your financial health. Can you pay for a surprise car repair? Data from a 2024 Empower survey uncovered that 37% of Americans can’t afford an unexpected expense of over $400. With the average cost of fixing a vehicle running $838, according to Kelley Blue Book (KBB), some owners with car troubles could be in a financial bind. This can lead some drivers to consider higher-cost payment options or delay repairs.

Cost-Versus-Risk: How to Run the Math for Your Car

Calculating whether a car service warranty makes financial sense includes assessing repair bills for your vehicle. RepairPal can provide specifics, but here’s a look at average yearly outlays for popular models:

These figures may not seem overwhelming, but remember, they’re averages. In some situations, the math may favor an extended warranty when you look at the cost of specific repairs or component replacement. Here, the averages from RepairPal are more significant.

Consumer Affairs says that the average powertrain extended warranty (which covers the engine, transmission, and drive axle) costs $600 to $750 per year, while a more expansive plan with fewer exclusions costs about $1,000 annually. Importantly, these are typical auto repair costs. The actual price will vary based on the vehicle, mileage, and other factors. Plan pricing will also be affected by the deductible you choose; the higher the deductible, the lower the coverage costs.

Looking at the numbers, replacing an exhaust manifold after two years of powertrain coverage (up to $1,500 over this period) would result in a break-even scenario. However, more significant repairs can make extended coverage financially beneficial, depending on the cost and plan selected. The cost of a new turbocharger (up to $2,915) is clearly more than a powertrain plan over two years. Even paying for a more comprehensive plan over three years (at a total cost of $3,000) is far less than a major engine repair like a cylinder head replacement (up to $5,040).

Red Flags and Green Flags When Shopping

When you compare car warranties, be attentive to which providers offer transparent terms and clear coverage information. Start by looking at online reviews from Google, Consumer Affairs, and TrustPilot. Checking the company’s rating with the Better Business Bureau can also be helpful. Remember, no company is perfect, but examining how an extended warranty company handles issues can indicate if it’s worthy of your business.

You’ll also want to get into coverage details by reviewing sample contracts and asking questions. An extended warranty company’s initial responsiveness can indicate how customers’ claims are handled. Also, look for customer-friendly policies, such as multiple payment options, a free-look period allowing plan cancellations and refunds, and a well-defined claims process. Lastly, find out how long the firm has been in business and research the company’s claims process and customer feedback regarding claims handling.

Alternatives If a Service Warranty Isn’t the Right Fit

The simplest alternative to getting an extended warranty is not to have one. However, if the thought of expensive car repairs keeps you up at night, this probably isn’t the best approach. For some owners, reducing uncertainty about repair expenses is an important consideration.

One option is to create an emergency car repair fund. The challenge is to be diligent, even if money is tight. Set aside a specific amount each month, and, ideally, put it into a separate bank account so you’re less tempted to access the funds for other purposes. After two years, saving just $50 monthly will create a $1,200 fund.

If you’re looking for a more specific savings target, research your car’s average yearly repair costs reported at RepairPal. Add 25% of that amount as a buffer against more expensive work, and divide the total into 12 monthly deposits into the repair fund. That works out to about $45 per month for RAV4 or $82 per month for a Ford F-150. However, a major repair early on could exceed what has been saved.

Alternatively, contact your regular auto insurance company to see if it offers car repair insurance. Known as “mechanical breakdown insurance,” car insurance providers like Geico and Allstate can pay for vehicle repairs, but this option tends to be available only for newer cars. Regardless, it’s still worth a phone call.

Another option is considerably more expensive: get a different car. Whether you opt for a new vehicle or something pre-owned, your existing car may have trade-in value. However, unless you pay cash, there are monthly payments to contend with, which may be more than what you are already paying. Still, you might be able to purchase a car with factory warranty coverage, eliminating the worry of paying for repairs.

How to Compare Quotes Apples-to-Apples

If you decide to move forward with securing a car service warranty or extended warranty, it’s wise to compare providers. However, doing so can be overwhelming as plans can vary significantly in coverage and cost. Although pricing is important, be sure to examine coverage details closely.

Sometimes, the cheapest plans will have carveouts that can leave you on the hook for specific repairs. If you’re looking for a program beyond powertrain protection, pay special attention to coverage for air conditioning, electrical systems, and high-tech components. In addition, confirm whether the plan pays the shop directly or requires reimbursement, as processes may vary by provider. Also, verify that the company is the direct plan administrator, which speeds up claims. Some providers have third-party administrators.

Research common trouble spots with your car and determine if the proposed service contracts will cover these areas. Consumer Reports has a good resource for this. You might even want to enlist the help of a trusted mechanic who can help you assess the different contracts.

Beyond repair particulars, examine what each company charges to transfer the warranty to another owner and identify any other fees that might occur during the service period. Most vehicle service contracts include benefits like roadside assistance. Some companies add rental car reimbursement and trip interruption protection. See how these extras match up, including daily allowances and reimbursement rates. Lastly, confirm the cancellation policies and refund rates.

Endurance Delivers Protection with Value

Endurance Warranty Services has supported many car owners with coverage for unexpected repairs for almost two decades. In that time, we’ve become one of the top direct-to-consumer vehicle service contract providers in the country.

Learning more about how Endurance vehicle protection can help you with unexpected repairs. Get a FREE quote or visit the Endurance online store for instant plan and pricing information. Explore different coverage options that include the freedom to choose any licensed repair facility for covered repairs. Customized plans are also available. Just call an Endurance representative at (800) 253-8203.

Stay up-to-date on DIY maintenance, warranty insights, car reviews, FAQs, and more by reading the Endurance blog.