An extended vehicle warranty is a guarantee that a vehicle will continue to function properly for some period after being sold, and that if it has defects or breaks down in certain ways it will be taken care of free of charge. An extended vehicle warranty is extended because it covers a car after it is sold, whereas the basic warranty itself is just that the car is sold in working condition. Often people believe there is a difference between a vehicle warranty and an extended vehicle warranty, but the terms are almost always used interchangeably in the United States and Canada.
The terms of an extended vehicle warranty can vary widely, depending on the dealer or the guarantor of the warranty. Generally they will cover a vehicle for a set period of time, often three to five years, or for a fixed number of miles driven, whichever occurs first. The most common extended vehicle warranty covers any defects or problems that arise through normal usage, such as an engine that is overheating, or a belt that has shaken loose.
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With only a few exceptions, an extended vehicle warranty will not cover problems outside of normal use. A person who uses their vehicle well beyond what it is meant to withstand, such as taking it driving off-road on an extended trip through the desert, for example, will likely have breached their warranty, and any damage that occurs will not be covered. Similarly, "acts of God" are generally not covered by an extended vehicle warranty, so a truck that is damaged by a tornado will not be covered by the warranty.
Similarly, a vehicle warranty will generally not cover the replacement of parts that are expected to wear out or wear down. For example, although tires will wear down to a point where they would be dangerous to drive on well before most warranties expire, repairing them is usually not covered by a warranty. Similarly, parts like spark plugs or oil changes are not covered by most warranties.
There are many different levels of quality when it comes to an extended vehicle warranty. Most warranties are offered by sub-contracted third parties, which are sold by the dealership. As a result, these tend to be the cheapest warranties available, designed to attract buyers. This price may seem tempting, but when repairs are needed a number of hidden costs may suddenly appear. For example, many warranties will exclude any number of high-cost parts from their warranty, and may require the purchaser to use whatever mechanic or shop the warranty guarantor wishes.
A more expensive extended vehicle warranty may seem like a waste of money initially, but in the long run it can actually save money. An insured extended vehicle warranty will generally cover the actual shop rate, and give the purchaser the right to choose which shop they want their repairs done at. Additionally, this type of warranty will often cover more than a less expensive warranty, and will have very few added costs, with the exception of a clearly spelled-out deductible.