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When purchasing a new car, the car dealership typically offers an extended warranty that kicks in after the standard warranty expires.
However, the question often arises, is it truly beneficial to invest your money in an extended warranty for your new vehicle? Some view it as a scam by car dealerships. In this article, we’ll dig into whether getting an extended car warranty is actually a good idea or not.
Table of Contents
What is Extended Warranty?
An extended warranty on a car is an additional protection plan that you can purchase to cover certain repairs and maintenance beyond the standard factory warranty period by OEM (Original Equipment Manufacturer).
It kicks in once the factory warranty expires and provides continued coverage for a specified duration. This extra coverage is meant to give you peace of mind and financial protection against unexpected mechanical issues, repair/replacement or breakdowns that may occur after the initial warranty period ends.
Buying an extended warranty is optional when purchasing a new car. Purchasing an extended warranty for your vehicle is not mandatory.
What is the benefit of an extended warranty?
It is a written assurance made by the car manufacturer to repair/replace any faulty components (mechanical/electrical), provided it meets the terms and conditions of the scheme.
In some cases, you can even opt for this plan one day before the standard warranty expires. The extended warranty also guarantees repairing/replacing defective parts in a car, just like the standard plan, but for an extended period. What are its benefits:
1. Save on repair costs
An extended warranty can help you avoid paying for expensive repairs or replacements and labour costs, especially for major components like the engine, gearbox, or electrical components.
2. Increase your car’s longevity.
An extended warranty can help you keep your car in good condition for several years, which can be beneficial if you plan to use it long-term.
3. Better resale value
An extended warranty can increase your car’s resale value, which can help you get a better deal when you sell it.
Is an Extended Warranty worth it for new cars?
The need for an extended warranty varies from person to person, but in many cases, it ends up unused or provides minimal help. People often don’t utilize extended warranties, allowing them to expire and wasting the money spent on them despite the peace of mind they may initially provide. Let me explain why an extended warranty isn’t always a beneficial tool when purchasing a new car.
1. Limited Coverage
Extended warranties only provide comprehensive coverage for part of the vehicle, often only covering components such as the engine bay and gearbox.
2. Exclusions from Extended Warranty
Extensive warranties typically do not cover other car key components like tyres, brakes, clutch, music systems, and suspension, despite claims suggesting otherwise. In the picture below, mainly these are the key components that are covered by the extended warranty.
3. Limited Mileage Coverage
Some parts may only be covered up to a specified mileage restriction, often between 30,000 and 40,000 km in the case of Maruti Suzuki, leaving the extended warranty worthless after this point.
For Example, the Maruti Brezza Hybrid battery is the costliest part, but it has only 2 years or 40k kms warranty. After that, not even an extended warranty can help you if something goes wrong with it.
4. Service Restrictions
Owners may be restricted from servicing their vehicles outside of authorized dealerships or extending service intervals, potentially voiding the warranty. Nor owners can install aftermarket accessories as it will void the warranty.
5. Manufacturer Durability
Car and engine components undergo extensive research, development, and testing to ensure durability for several years, often surpassing the duration of standard warranties. However, manufacturers may limit warranty coverage to generate additional revenue.
Car manufacturers spend years researching, manufacturing, and testing every mechanical part to ensure they can last for 5-10 years easily. It is comparable to AC compressors, which are given a 5-10 year warranty because it is made to last, but car companies avoid giving a maximum warranty for free because they can charge for it.
For Example: Toyota had given 10 years of warranty in the UK and USA not only on their new car but old cars to without any service record.
Update: Recently, Lexus India Introduces 8-Year/160,000 km Warranty for their cars from June 2024. All new Lexus models sold in India will come with an impressive 8-year or 1,60,000 km warranty. Those who don’t know Lexus brand is owned by the Toyota Motor Corporation.
6. Free Money for Manufacturer
It’s a fairly simple way for the car company to make money because the majority of extended warranties provided are never used, resulting in free and easy money. Remember that only 1% of 1,00,000 cars sold have some defect, and this is where an extended warranty comes in handy.
Let’s take a small scenario to have a better understanding. A car company ‘X ‘giving extended warranty at Rs 25,000. They sell 10 extended warranties with new cars at Rs 2,50,000, and where 1 warrant has to be incurred or claimed by the owner for Rs 25,000 (give and take), but they still earn Rs 2,25,000. Now imagine this scenario with 100000 sold cars.
Who should buy Extended Warranty?
1. New Drivers
If you are a new or inexperienced driver, or if your driving skills are not great, your car’s likelihood of wear and tear is higher. Even if you have been driving for five years, you may still misuse car components, such as excessive clutch use that can damage the clutch plates or hard acceleration that can strain the engine and transmission.
For new drivers, I would suggest starting with an older car before moving on to a new one. This way, you can get used to driving and handling a vehicle without the added pressure of potentially costly repairs due to misuse.
2. You have very high running
If you have a very high running, especially with a diesel engine, this makes sense as the wear and tear of chances are high.
3. Having CVT transmission or AMT gearbox
Having CVT Transmission and AMT gear can cost you a fortune. This was learned by a Hyundai i20 owner whose warranty period expired, and his replacement of CVT transmission cost him around 4 lakhs while his i20 total cost was 12 Lakhs.
4. Expensive Cars
If your car costs above 20 Lakhs, then you should get an extended warranty because an expensive car means expensive parts and labor fees.
5. Luxury Car
If you are buying a luxury car, BMW, Skoda, or Audi, then you are required to have an extended warranty as maintaining German cars and luxury cars are both expensive.
6. New Launched Car
Consider purchasing an extended warranty for a newly launched car, such as the Hyundai Exter. This does not include a facelift. Even though these new cars undergo testing, they are still fresh in the market and may encounter issues over time. An extra warranty can provide added protection and peace of mind in case any problems arise with the vehicle.
Who should not buy an Extended Warranty?
1. Experience Driver
As an experienced driver, you may feel confident in maintaining and handling your vehicle properly. In many cases, issues only arrive earlier and are typically covered by the standard warranty and can be rectified without the need for an extended warranty.
2. Less Running
If you drive your car less frequently, it can result in less wear and tear on the vehicle. This can lead to fewer defective parts and potentially lower maintenance costs.
3. Toyota owner
Toyota owners don’t need extended warranty because their car can sustain the next World War. I hope there isn’t a War, your Toyota car can easily last up to 15 years without any problem. Remember here I am talking about cars made by Toyota only, like Innova, Hilux and Fortuner (this does not include Maruti Suzuki cars like Glanza, Hyryder, and Taisor).
4. Modification
When considering modifications such as upsizing tyres or installing CNG fittings, it’s essential to be aware that these alterations can void the warranty provided by the manufacturer, including any extended warrant.
5. Good Caring
Taking good care of your car and ensuring proper and timely servicing are essential for maintaining your vehicle’s longevity and performance. Regular maintenance, such as oil changes, fluid top-ups, brake inspections, and other routine services, can help prevent potential issues and keep your car running smoothly.
6. Inexpensive car
If you are buying a car below 15 lakhs (except for German brands like Skoda and VW), you might not need an extended warranty. The replacement parts and repair costs may be more affordable than luxury or higher-end vehicles.
According to the Warranty weekly reports, when looking at global auto manufacturers currently selling their products in India, it’s interesting to note that Tata comes in second spot with the highest average warranty claim rates, right after the Volkswagen group, at 3.4% in 2020 and 3.1% in 2021.
In comparison, Hyundai seems to have lower claims compared to the global average, as Tata doesn’t have any global presence and are India exclusive. On the other hand, Mahindra takes the crown with the lowest warranty claim rate of just 0.5% in the domestic market. So, if you’re buying a Tata, it might be a good idea to invest in an extended warranty for that extra peace of mind.
Takeaway
An extended car warranty plan is optional. Depending on your usage and requirements, you can opt for an extended car warranty coverage.
It’s crucial not to feel pressured into purchasing an extended warranty solely based on the dealer’s recommendation. If you have less running do not buy the extended warranty. By waiting until your standard warranty is nearing its end, you can purchase an extended warranty based on your vehicle’s condition and any issues that may have arisen during the standard warranty period.
This approach can help you make a more informed decision and save money on the extended warranty. Before getting an extended warranty, check all its limitations and coverage to understand your new car better.
