Extended Auto Warranties: 5 Questions to Ask Before You Say 'Yes'

"I'm glad we could make a deal," the salesperson says, shaking your hand.

But just as you've breathed a sigh of relief, you realize that you are walking into the finance and insurance (F&I) office to sign the contract. Once inside that room, the F&I manager will likely offer you things such as paint protection, prepaid maintenance plans, theft-recovery systems and a road-hazard warranty for your tires. But one of the priciest products offered will likely be the extended car warranty.

Extended car warranties, also known as "vehicle service contracts," can provide peace of mind to people purchasing a new car. Auto dealerships like them because they are an additional profit center for the business. As with any decision in a vehicle purchase, you must research and weigh the benefits of the product.

An extended car warranty is repair coverage that kicks in after the typical manufacturer auto warranty has expired. This extended auto warranty will cover most major breakdowns and will — in theory — stabilize the cost of repairs since the prices of parts and labor tend to fluctuate over time. The automaker or a third-party administrator can offer this form of car warranty.

It is important to note that you have the option to purchase this auto warranty any time before the manufacturer warranty expires. You can even purchase an extended warranty after the manufacturer warranty expires, although the price will go up considerably.

You might already have asked the five questions that should precede the conclusion of a new car deal. But now it is time to ask yourself five extended car warranty questions. They'll help you decide whether this vehicle service contract is worth it, and they'll help you get the best price.

The Finance Manager Sets the Stage

Before we get to the questions you should answer for yourself, here's one you'll hear from the finance manager: "Do you plan on keeping this car for a long time?" It's a common question, and it's worth your consideration. Do you get tired of a car by its third year? If so, paying for an extended car warranty doesn't make much sense since the manufacturer's warranty will still likely be in effect. But if you are someone who drives a vehicle until the wheels fall off, the extended car warranty might be worth considering. But how long you'll keep the vehicle isn't the only consideration. Here are five questions to think through before you decide.

1. Who stands behind the extended car warranty?

Many dealerships offer third-party warranties from companies with varying track records. If you are going to purchase an extended car warranty, make sure it is backed by the automaker, not just the dealership or some other company. You can use a manufacturer-backed extended warranty at any dealership across the country. A third-party vehicle service contract might be good only at the dealership that sold it to you.

If you are considering coverage for a specific purpose, such as a rental car benefit or a higher roadside assistance towing limit than offered by the automaker, check for online reviews to see what others are saying about it.

2. Have you shopped for the best price?

It's unlikely that an F&I manager will be willing to let you shop around on your phone while you're sitting at his or her desk with a pile of purchase paperwork between the two of you. This research is best done before you go to the dealer to finalize your auto purchase. If buying the vehicle is already a financial handful, you can shop for a better price on the extended auto warranty after the sale. Here's how to do that.

Get a price quote from the F&I manager for the warranty that's offered. Then shop it around by phone with F&I managers at other dealerships, simply to compare prices on the car you're getting ready to buy.

The F&I manager at the dealership at which you're buying the vehicle might say that the price of the extended car warranty is not negotiable. That might not actually be the case. If you check with other dealers, you'll find that some of them do have a lower asking price for the same product. Or they might be more willing to negotiate.

The only benefit to getting an extended auto warranty as you purchase a vehicle is the ability to wrap the warranty's cost into your financing. But unless you've shopped in advance and can negotiate a lower price for the extended warranty on the spot, this route could cost you more in the long run.

Here's a look at bargaining strategies that an ace negotiator employs when shopping for an extended warranty.

3. Do you know what's covered?

An extended warranty isn't all-encompassing. Many wear-and-tear parts — items that will eventually break or wear out — are not covered by most vehicle extended warranties.

To complicate things more, many extended warranties come in coverage tiers — silver, gold and platinum, for example — each with its own price and level of coverage. Take the time to read the fine print to determine what is and isn't covered.

You must also determine who will front the cost for the repair bill. Are the repairs fully covered? Do you have to pay a small deductible? Or do you have to pay out of pocket for the repairs and get reimbursed later?

Finally, can you take the vehicle to any repair shop? Some third-party car warranty providers limit the repairs to only the dealership or repair shop specified in the contract.

4. What's your history with repair costs?

Have other cars you've owned had the kinds of problems that would have been covered by a warranty? If you are considering a road-hazard tire warranty, for example, think about how many times you've had a flat tire. If there is a lot of debris on the roads in your area or if you've had several flat tires in a short span of time, a road-hazard warranty may be worth looking into. But if you can't remember the last time you had a flat, you might not need the coverage.

You also can add up how much you have spent on out-of-warranty repairs in the past and compare the total to the warranty's price. For example, if you've paid $500 for repairs that occurred out of warranty, weigh that against the cost of the extended warranty.

You're never going to have the same repair history in any two vehicles, of course. But if you are buying a vehicle from the same carmaker, it can give you a rough idea of what to expect.

5. Do you really need this warranty?

Some F&I managers can make you feel that saying no to the extended warranty is like playing Russian roulette with your vehicle. You never know when that costly repair bullet might strike. But new cars are more reliable than ever. And the data seems to indicate that most people might not need an extended warranty.

According to the most recent J.D. Power study, overall vehicle dependability is on the upswing, improving in 2018 for the first time since 2013.

If you still want an extra measure of security, you can self-insure. Financial guru Dave Ramsey suggests setting aside half of what you would pay for a warranty and using that money to handle any car repairs that might come up.

No matter what advice comes their way, some people simply aren't willing to take chances or prefer the convenience of an extended warranty. They're more comfortable knowing that any major repairs will be taken care of. There's nothing wrong with that. If you're a belt-and-suspenders person, just make sure you ask the right questions before you buy an extended warranty.