What to know before you spend $1,000—or more—on a car warranty.

When you buy a new or used car, it’s nearly certain that you’ll be asked if you’d like to purchase an extended car warranty. At a cost of $1,000 to $4,000 it’s not a small expense, especially if you add the warranty to a car loan and pay interest on that sum. Here’s what you need to know to decide if an extended warranty is worth it.

How extended car warranties work

Extended car warranties pay for certain repairs if your car breaks down. In some cases, the warranty is a continuation of the factory warranty and covered by the auto maker. In other cases the warranty is provided by a third-party.

Every policy is different so you must read them carefully to know what problems are covered, which ones are not and if a deductible applies. Some plans cover everything bumper-to-bumper and others limit coverage to only the powertrain, which includes the engine, transmission and drive axle.

Keep in mind, car warranties do not cover routine maintenance such as oil changes or replacement of timing belts. Additionally, most manufacturers and extended warranty providers require that routine maintenance be done in order to keep their warranties in effect. For budgeting purposes, use AAA’s guideline that car owners set aside at least $50 month to cover routine maintenance.

Is a car warranty worth the expense?

Car warranties appeal to some people because they provide the peace of mind that expenses will be limited in case the vehicle needs repair. However, the reliability of many new cars combined with manufacturer warranties means that many extended car warranties are never used.

If the car warranty coverage overlaps with the manufacturer warranty, it doesn’t make sense to pay extra for coverage you already have.

An extended warranty may be worthwhile when buying a used vehicle because it’s more likely to have problems than a new one. However, all cars are not created equal. Check services like J.D. Power, Kelley Blue Book and Consumer Reports to determine the dependability of a used car you’re considering.

Also, keep your budget in mind. Will your income cover all the expenses that come with car ownership? Make sure you can cover the purchase price as well as routine maintenance, insurance and registration before you take on the added expense of a warranty.

Shop around if you opt for an extended warranty

If you opt for an extended car warranty, you don’t have to accept the one offered by a dealer. Shop around for one that offers coverage after the manufacturer’s warranty expires and allows you to get covered repairs at a place you trust. If you plan to move, and the warranty requires covered repairs to be done a certain service provider, you may have no coverage in your new location.

Financing your car

When it’s time to buy your next car, with or without an extended warranty, turn to Consumers for competitive rates on auto loans.

Consumers provides banking services for more than 120,000 members. If you have banking questions, call us at 800-991-2221. We make it easy to bank how you want, when you want.