An extended warranty may be worth the money.

“Do you want the extended warranty?” After you have bought a car, this will be one of the first questions you are asked, likely in a room with the dealership’s finance and insurance, or F&I, manager. It is a tough question because either “yes” or “no” can be expensive depending on how things shake out. Here is what you need to know about extended warranties.

What Is An Extended Warranty?

Most new cars are sold with a manufacturer’s warranty; if, before a certain set of milestones, your car has a major repair or other problems due to manufacturer defect or certain other issues, the dealership will take care of it free of charge. An extended warranty simply pushes that out further. In theory, it sounds great, but it is also an extra expense.

At root, an extended warranty is a bet. You are putting down money under the assumption that something major breaking in your car is likely enough to be worth the price of the warranty. It might well be, but there is more than one factor at play here.

Is It Worth It?

While you can use Kelley Blue Book and past recalls and performance can tell you the rough odds of something going wrong, the real product being sold here is peace of mind. People buy extended warranties because they feel anxious about a huge purchase like a new car. It is hard to fault anybody who wants to spend a little money to feel a little better.

At the same time, if you are not worried about your new car being a lemon, or you have looked at the data and think your make and model is particularly reliable, then why spend the money? If, on the other hand, you want to hedge your bets, here is what to ask.

An extended warranty can offer peace of mind.

Who Sells It?

Most extended warranties are sold by a third party, usually a financial company. It may sound a lot like you are getting a warranty from the same company, but you are not. So before anything else, you should check the track record of the company behind the warranty before you walk into the dealership. Keep in mind, just like your auto financing, you have no obligation to buy an extended warranty from the dealership. In fact, you do not even need to buy it that day; until your warranty ends, you can get an extension.

What Does It Cover?

Extended warranties, despite their names, do not just extend the manufacturer’s warranty. Instead, they have set terms for what they will cover and what they will not, and those can vary widely from company to company. Some warranties are extensive, and others are little more than an expensive way to cover door dings. Just like any other form of insurance, study the policy closely before you buy.

How Do I Cash It In?

If you do buy an extended warranty and something does go wrong with your car, it is important to understand how that warranty will be honored. Do you have to submit a bill? Do you have to document what happened? Do you have to go to a specific repair shop?

Figuring out what to buy, and when, can be difficult. Use the research from CarFoundMe to find the best deals, get the right advice, and find the right car for you.