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Should I Buy an Extended Warranty on a New or Used Car?

We all want to know. Is an Extended Warranty or Service Contract Worth the Added Cost?

Well, it really depends on a number of factors. For many years extended warranties were considered an unnecessary expense. Rarely did the value meet the cost to purchase one. However, today, with the advance of technology, and much better cost-effectiveness, more drivers are opting for extended coverage. 

Let's start by looking into what they actually are.

 

What Is an Extended Warranty or Service Contract?

It is helpful to look at these contracts as insurance. In fact, these policies are Mechanical Breakdown Insurance. They are fully backed by an insurance company.

For an additional cost, the manufacturer or a third party company extends your coverage beyond the initial warranty km allowance/end date. An extended warranty sells peace of mind for your vehicle for those customers willing to pay for it. There are many different plans available that are based upon 3 key variables - time, mileage, and coverage level.  

Insurance is generally a good idea if the loss that is being insured would be too expensive for you to cover yourself. For example, the cost of rebuilding your house in the event of a fire would be too much out of pocket. So too is the potential cost of having to replace an engine, transmission, or other major repair. But is an extended warranty worth the price?

First, let's see what's included.

 

What Warranty Do You Receive When Buying a NEW Vehicle?

The warranty you receive with the purchase of a new vehicle is the standard manufacturer warranty. It is included in the vehicle price. Let's break it down. 

Powertrain Warranty

In short, powertrain warranties cover everything that makes the vehicle move, including the engine, and transmission. Plus all the parts that connect the power to the wheels (the drivetrain).

Comprehensive Warranty

This is coverage over and above the powertrain. Covers electrical issues, AC, suspension, brake system, and most other parts in the vehicle.

Corrosion/Rust Protection

Some warranties will only cover rust perforation. This essentially means the vehicle needs to rust through the metal completely in order for coverage to apply. However, many automakers also provide coverage for surface corrosion which means any visible rust. 

Roadside Assistance

The coverage provided includes emergency battery boosting, lockout service if you locked your keys in your car, and towing in case of a more serious breakdown. Additional services such as rental coverage will depend on your manufacturer. 

Summary

The length, kilometre allowance, and coverage can vary greatly depending on the manufacturer and vehicle you are purchasing. 

KIA Canada leads the charge with a best-in-class 5-year bumper-to-bumper warranty. Honda, Nissan, and Toyota all bring up last place with 3-year warranties.

 

What Isn’t Covered?

Maintenance and any “wear-and-tear” items such as brakes, tires, bulbs, oil and fluid changes are not covered by warranty. Additionally, the tires and battery are usually covered but only for premature wear/degradation or defects since they are expected to require replacement over time.  

 

What Warranty Do You Receive When Buying a USED Vehicle?

The warranty remaining on a used vehicle depends on the age and mileage of the vehicle. Vehicles five years of age or older are usually completely out of the original warranty contract. However, the original customer may have purchased a transferable extended warranty. But don't worry - the seller will be quick to mention it as it adds considerable value to the vehicle.

Purchasing from a reputable dealer is also a benefit when it comes to warranties. At KIA Victoria, we offer:

  • 72-Money Back Guarantee
  • 12-Day Used Car Exchange Privilege
  • The Basics Guarantee
  • Best Price Guarantee
  • Limited 90-Day Warranty

Check it all out here.

 

 

How to Decide What Extended Warranty Is Right For You?

Driving Habits

You should ensure that the contract that you purchase is consistent with your annual driving habits. Plus, it needs to align with how long you expect to own the vehicle. For example, purchasing a high mileage and short-term contract does not make sense if you drive less than 20,000 km per year.  Similarly, getting a 7-year extended warranty doesn't make sense if you only keep your vehicle for 5 years. 

Coverage Level

Coverage levels are typically broken into 3 or 4 categories. The most basic coverage is the powertrain warranty.  While many components are not covered, the engine, transmission, and drivetrain are covered.  These also tend to be the most expensive repairs. 

Most companies also offer an intermediate coverage which covers additional critical components such as electrical and most electronic items.  These policies are referred to as named inclusion warranties as they specifically name the parts that are covered.  

The top-level of coverage is named exclusion warranty whereby the policy only states what isn't covered. This coverage is very similar to your factory warranty and aims to effectively continue the same level of coverage that you have under your new vehicle warranty.  

Of course the more coverage, the higher the cost of the warranty. Choose wisely, and buy only what you need.

Deductible Options

Deductible options can be as low as $0. But the lower the deductale, the higher the coverage cost overall. If you are someone who is risk-averse, the higher upfront cost might be worth the peace of mind provided by a lower deductible.  

Some dealerships also offer a “disappearing deductible” whereby the deductible only applies to a repair claim not repaired by the selling dealership’s Service Department.  

 

Third-Party Warranty Coverage

Dealers will typically offer both warranties backed by the manufacturer as well as 3rd party warranties. It is worthwhile to compare the two warranties. While a manufacturer’s warranty has the backing of the brand that you are purchasing, many 3rd party warranties have coverage levels superior to the manufacturer and are priced lower. 

The range of quality and coverage on third-party warranties can vary and you should research the various options available. Googling company reviews and searching Better Business Bureau complaints will give you a much better idea of who you are dealing with and how they treat their customers when handling claims.

A great gauge of warranty is the dealership’s reputation. A reputable dealership will only use extended warranty providers that have a good track record in handling their customer’s claims.  

 

When Is the Best Time to Buy?

Buying an extended warranty usually makes the most sense at the time of purchase. This is when you can include the cost of the warranty in the vehicle's financing. This takes away the large upfront cost of purchasing an extended warranty in exchange for paying interest over the course of the loan. If you are buying the vehicle under a low-interest rate offer, that lower rate also extends to the extended warranty. 

If you decide to wait, you are able to add an extended warranty later. But please note that you will need to do so prior to the manufacturer’s warranty expiring. You may also require an inspection and pay a surcharge. If the vehicle manufacturer’s warranty has expired, you can only purchase an extended warranty at the same time as you purchase the vehicle.  

The other thing to note is that most extended warranties are both cancellable (although only the unused portion of the term will be refundable) and transferable to a new owner of the vehicle. This is beneficial if you decide to sell or trade-in your vehicle prior to the warranty term expiring. 

Conclusion

Hopefully we've given you lots to think about, and that you're well on your way to making the right decision for you. At KIA Victoria, we believe everyone should buy with confidence. It's that simple. We provide this library of resources, articles, and advice to make your next car buying experience one to remember - for all the right reasons. We do things differently at KIA Victoria. Let us show you how.

Check out our NEW INVENTORY, and our USED INVENTORY.