What is a car extended warranty and how can you benefit from it?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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Buying a car at a dealership can be intimidating and confusing at times, especially when a dealer mentions add-ons that may be advertised as being must haves to protect your car. One of these add-ons is an extended warranty which is designed to extend the original warranty of the car, but is it worth it? Here is a guide on what is an extended warranty and whether it will offer you best value for your money.

How does a car extended warranty work?

All new cars come with a warranty that is set by the manufacturer to protect you against any defaults or repairs that the car will have in the period in which is set by the warranty. An extended warranty is when a customer pays a fee in return for a warranty that exceeds the agreement that your dealer or manufacturer has set. However, consumers need to be careful when paying for extended warranties as some dealers may mislead them on the benefits that it offers.

What are the possible benefits of an extended warranty?

Most guarantees provided by dealers usually have a limited period of time or distance in which they will cover your vehicle for. The other catch is that protection will vary between states. Therefore, checking to see which warranty your car falls under can help consumers better prepare their finances.

Basic cover is provided for cars that are 10 years old and have covered a distance of 200,000 km. There are also Standard and comprehensive warranties that come with cars that five years old and have less than 125,000 km. An extended warranty can help you to stretch the distance and period in which you are covered for. Keep in mind to see what warranty is applicable to the state that you are in.

What if you own a used vehicle?

It is possible to get an extended warranty on used cars and motorcycles. You are by law entitled to have a similar protection, but there could be some limitations such as having a warranty that comes with lower limits. Carefully weighing the pros and cons when it comes to taking out an extended warranty on a used vehicle to help you see if this will be financially viable in the long run.

What are the limitations?

Consumers need to be careful when it comes to taking out an extended warranty on their car as this might come with some limitations. For example, there is a limited amount in terms of how much the warranty can cover you for. A basic claim can have a ceiling amount of $3000 while a standard cover can be $5000.

Being aware of such details can help you prepare a budget that will be able to foot a possible shortfall in maintaining and repairing your car. Always keep in mind to check the product disclosure document to see what will be applicable to your situation.

An extended warranty does not replace car insurance, which is vital for any car owner to keep them protected from expenses that come from their car being damaged.