- Extended car warranties can be useful, but they often offer limited value, especially when compared to a manufacturer’s warranty or paired with protections under Australian Consumer Law.
- Not all extended warranties are equal: manufacturer-backed extensions tend to be more flexible, while dealer or third-party warranties may impose rules and exclusions that reduce their usefulness.
- Doing the maths is essential, as in many cases the cost of the warranty may outweigh any benefit provided.
You can get an extended warranty on anything these days - your computer, phone, fridge and, of course, car. You probably know that all new cars come with some sort of manufacturer’s warranty, and consumer laws are in place to protect those unwittingly purchasing lemons. In addition, most car dealerships will offer an extended warranty option, but are they worth it?
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What is an extended car warranty?
Extended car warranties can be applied to both new and used vehicle purchases via a dealership. An extended warranty kicks in after the manufacturer’s warranty expires, appearing to offer additional protection against faults or issues with the vehicle.
However, what an extended warranty covers might be totally different to what a manufacturers warranty protects against, potentially making the product significantly less valuable.
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Because cars are some of life’s biggest purchases, and that you basically need one in Australia, it’s common to fear something wrong happening. This is where an extended warranty might seem like an appealing proposition.
However, you’ll need to do your homework about who’s supplying the extension and what’s included. After all, you don’t want to pay $500 for something that only covers $500 worth of engine repairs, or that only provides what's already covered under Australian Consumer Law.
What does an extended warranty cover?
There’s no set list of what an extended warranty must cover, which is why it’s important to read the product disclosure statement (PDS) and the terms and conditions.
Commonly covered items include select parts of an engine, transmission, or differential up to a certain dollar amount. More elaborate warranties may cover everything that was covered under the manufacturer’s warranty.
Some might even cover any repair costs up to the market value of the car at the time which, depending on depreciation, could still be tens of thousands of dollars, while others may offer ‘bumper to bumper’ warranties, claiming to cover virtually everything that makes up the car.
Normal wear and tear usually isn’t covered, no matter the warranty.
How much do extended warranties cost?
Bargain basement extended warranty policies generally cost about $300, while more comprehensive policies can cost thousands.
Dealer vs manufacturer extended warranty
Buying a new car is hard enough without being bamboozled by the car dealership and their fast-talking salespeople. Generally speaking there are two kinds of extended warranty:
Manufacturer extended warranty: A manufacturer might offer to extend their warranty beyond the usual period of three or five years.
Third party or dealer extended warranty: A dealership or finance provider may offer you their own extended warranty.
While the former doesn’t usually impose any additional restrictions on servicing your car, the latter might.
A dealer or finance provider can theoretically put anything in their extended warranty contract, forcing you to jump through hoops to retain warranty coverage. Such a restriction might include servicing only at the dealer you bought your car from and, if you get it serviced elsewhere or run late just one time, the warranty is void (and you likely won't get a refund).
Extended warranties on used cars
Used cars bought at a dealership often come with a three-month statutory warranty by law. In Queensland, for example, it’s three months or 5,000 km for cars less than ten years old with under 160,000kms on the odometer.
Cars that have more mileage than that on the odometer or are older than ten years are covered for one month or 1,000kms of travel.
If you’re buying a used car and you know you probably can’t afford a repair, an extended warranty may look appealing. However, it may be hard to get a good-value extended warranty. Before purchasing any extended warranty, it’s important to go over your options and read the PDS.
Regular manufacturers' warranties are also transferable from owner to owner. Generally speaking, buyers of cars within manufacturer warranty periods should ensure the car comes with its original warranty documents.
Extended warranty restrictions
An extended warranty's Ts & Cs likely stipulate that you service your car on schedule at a certain dealership or service centre. Not doing so could void the warranty.
This could mean higher servicing costs than if you sought an independent mechanic - you’ll need to weigh up if it's a worthwhile trade-off.
Manufacturers' warranties generally allow you to repair and service your vehicle at any accredited provider, not just its dealership.
What about Consumer Law?
Australian Consumer Law guarantees that the car or product you buy will do what it’s reasonably expected to do, and car manufacturers are required to continue to support the vehicle for a ‘reasonable’ period beyond the manufacturer’s warranty.
This means that if you’ve done everything by the book and looked after a vehicle just for its engine to blow up the year the warranty expires, the manufacturer may still have a duty to get you back on the road.
Given that consumer laws in Australia are generally supportive and manufacturer warranties are often generous, an extended warranty might not provide any value over what’s already etched into law or provided out of the box.
Be wary of any dealership trying to pressure you into purchasing an extended warranty, especially if you catch a whiff of deceit surrounding the terms and conditions.
