Dealership Extended Warranties: Is It Worth It?
Michael Collado is a car buying expert and has been a professional automotive writer since 2009. He’s written about dealership sales, vehicle reviews and comparisons, and service and maintenance for over 100 national automotive dealerships. Previously, Collado was a copywriter at the ad agency TBWA/Chiat/Day where he worked on brand campaigns for Nissan, ABC Television, Sony PlayStation, and Energizer. His recognition in the ad industry includes awards from Communication Arts and The Clios.
Collado has a Bachelor’s degree from the University of South Florida, with a major in Psychology and a minor in Marketing.
When you purchase that new car or SUV, you have to think about more than the exterior paint color or whether you want to get your vehicle with a sunroof. You also have to consider the amount of warranty coverage that you will need.
Many dealerships offer their version of an extended warranty. However, is this worth it?
We have taken a close look at dealership extended warranties to help you determine if they are worth the investment.
Table of Contents
- What Is a Dealership Warranty?
- Dealership Warranty vs. Manufacturer Warranty
- Dealership Warranty Pros
- Dealership Warranty Cons
- Dealership Warranty Costs
- How Much Do Dealerships Make From Warranties?
- Are Dealership Warranties Worth It?
- We Recommend These Reputable Warranty Providers
- Best Car Deals by Category
- Frequently Asked Questions
What Is a Dealership Warranty?
A dealership warranty is coverage that will take care of specific repairs after the original manufactured warranty has expired. As an example, let’s say you purchase a new Ford F-150 with a 5-year or 50,000-mile manufacturer’s warranty. That means that after five years of 50,000 miles - whichever comes first - the warranty expires. However, if you have a dealership warranty, you are covered after the manufacturer warranty expires.
Dealership Warranty vs. Manufacturer Warranty
There are several differences between a dealership warranty and a manufacturer warranty. Here’s a look at what you need to know:
- The manufacturer warranty is included with the vehicle - You don’t have to pay for the manufacturer’s warranty. However, there is an additional cost for the dealership warranty.
- A dealership warranty can have varying levels of coverage - A dealership warranty can cover just the powertrain or it can cover the powertrain and other parts and systems on your vehicle. Finally, you can get a dealership bumper-to-bumper warranty that covers almost everything on the vehicle.
Dealership Warranty vs. Third Party Warranty
You will also notice some differences between a dealership and a third-party warranty. Here is what you need to know:
- Third-party warranties cover a wider variety of vehicles - A dealership warranty is only available for vehicles purchased at the dealership. Third-party warranties can cover a wider variety of vehicles.
- Third-party warranties allow for repairs at a variety of service centers - With a third-party warranty, you can have your vehicle repaired at a variety of service centers or garages. A dealership warranty may only allow repairs at their service center.
Dealership Warranty Pros
- Easy to purchase - You don’t have to deal with contacting an independent warranty company. You can purchase your dealership extended warranty right when you purchase the vehicle. If your time is valuable, buying from the dealership makes sense.
- The dealership can service the vehicle - If you purchase a luxury vehicle or a foreign vehicle, then you may want to purchase an extended warranty from the dealership. That’s because it could be easier to process the repair.
Dealership Warranty Cons
- You may pay more - Dealerships make more money from their financial products and their service center than actual vehicle sales. Therefore, you may be paying more than simply purchasing an extended warranty from an independent company.
- You may not need it - According to a survey from Consumer Reports, only 55% of people who purchased an extended warranty from a dealership used it. Also, only 25% of people who purchased a dealership extended warranty would buy one again.
Dealership Warranty Costs
The average cost of a dealership warranty is about $1,00 to $1,500. However, the exact cost will depend on service factors:
- The amount of coverage
- The type of vehicle
- The duration of the extended warranty
How Much Do Dealerships Make From Warranties?
Warranties are a huge profit center for dealerships. Some dealerships can make a 50% profit from each warranty that they sell. Compare that to the 7% to 13% profit margin from a new vehicle sale.
Are Dealership Warranties Worth It?
Overall an extended dealership warranty will be worth it, depending on how long you intend to drive the vehicle. For instance, if you intend to drive the vehicle after the original warranty has expired, then a dealership warranty may be worth it. However, it is recommended that you shop around and get at least three quotes before making a purchasing decision.
We Recommend These Reputable Warranty Providers
At FindTheBestCarPrice.com, we highly recommend that you consider third-party warranty companies that have a reputation for excellent pricing and higher-than-average customer service.
- CarEdge - This company offers service with different extended warranty policies, including coverage for EVs and EV batteries.
- Endurance - Endurance is one of the leading sellers of extended warranties. With a 3,8 average rating on Yelp, you can be sure that they are trustworthy.
- Olive.com - This is one of the most well-known extended warranty companies. They offer several levels of coverage, including powertrain only and bumper-to-bumper coverage.
We highly recommend that you get multiple quotes before you make a purchase. While all three services are recommended, one service may offer more savings than the other two.
Frequently Asked Questions
Should I buy an extended warranty from the dealership?
You should consider purchasing an extended warranty from a dealership if you are purchasing a higher-end vehicle or you don’t have the time to shop around. However, you can find a better deal by looking at certain third-party warranty companies.
Can I purchase a dealership warranty later?
Yes. You can purchase an extended warranty at any time from a dealership.
Are dealership warranties more expensive than manufacturer extended warranties?
Dealerships will tend to mark up their warranties by as much as 100% of their value. Therefore, you may be better off with a manufacturer’s extended warranty.
Are dealership warranties more expensive than third-party extended warranties?
In most cases, a dealership warranty will be more expensive than a third-party extended warranty.