Dealership warranty programs provide a considerable amount of coverage and often offer perks similar to those from third-party providers. Be careful not to overlook markups on your car loan, add-ons that you don’t need, and insufficient coverage, though.
You may have also noticed that extended warranties from a dealership can be more expensive than ones from third-party companies. That could have left you wondering how much money dealerships make on warranties and whether a dealership extended car warranty is worth it. We’ll give you answers to those questions below.
What Is A Dealership Warranty?
Dealership warranties are manufacturer-backed extended auto warranties that provide coverage for production defects on your vehicle. Like most vehicle protection plans, a dealership warranty doesn’t cover wear and tear damages. This type of extended coverage can be purchased from nearly any authorized dealer under your automaker. An extended warranty is useful for a variety of reasons, and in our 2022 customer survey, these were the most common answers as to why customers purchased their extended warranty.
Dealership Warranty: Pros And Cons
If you’re offered an extended warranty when purchasing your vehicle at the dealership, it can be difficult to know what type and length of coverage you need, as well as how much it should actually cost.
Our team has put together a few of the pros and cons of buying an extended warranty from a dealership to help you make an informed decision.
Pros Of Dealership Warranties
Consider the pros of dealership warranties to determine if it’s the best option for you:
- Reliable coverage: Buying a manufacturer-backed extended warranty from a dealership can give you more comprehensive coverage than one backed by a third party. You’ll gain access to high-quality service from licensed dealerships that employ factory-trained technicians and use factory parts.
- Benefits: Dealership warranties offer an array of benefits like roadside assistance and rental car reimbursement. Manufacturer’s warranties also remove the hassle of paying for services upfront and having to be reimbursed later.
- Convenient for car buyers: Buying an extended warranty at the same time as when you purchase your used or new vehicle eliminates the need to search later on. Any deals you’re offered during your car purchase may make warranty pricing seem more reasonable as well, and you may be offered a reduced down payment.
Cons Of Dealership Warranties
Also take the time to look over some of the disadvantages of buying a dealership warranty:
- Higher interest rate: When you accept an extended warranty offer from a dealer, your warranty payments may be combined with your regular monthly auto payment. This results in paying interest on your warranty along with your car, making your purchase more expensive.
- Fees and unwanted add-ons: A dealership warranty can come with additional fees and unnecessary add-ons. While you may be able to negotiate with the salesperson, these fees and add-ons are usually set in place and can’t be altered as easily as with a third-party warranty plan.
- Poor return: Dealership extended warranties take effect almost immediately, which means that you may be paying for a warranty well before you need to use it. Depending on the length of the warranty, there’s a chance that it could expire before you’ll need any repairs done.
How Do Dealerships Make Money On Warranties?
Dealerships make significant money from aftermarket sales, which includes selling gap insurance, car products and accessories, and extended car warranties. Each warranty plan that a dealership sells can add up to $2,000 per purchase to its bottom line. For example, if you purchase an extended warranty for $2,000, the dealer may make a profit of up to $1,000.
Plus, when you purchase a dealership extended warranty, dealers make money for the duration of your vehicle service contract because you’ll likely bring your car to their own service department whenever you need car repairs or replacements.
Why Do Dealerships Charge More For Warranties?
Because dealerships make a significant portion of their profits from aftermarket sales rather than from new car sales, they hope to be your primary source for an extended car warranty. Dealers want to make the car buying experience as easy and efficient as possible, so they will try to sell you a warranty based on convenience and accessibility.
However, dealerships often mark up the prices of their extended warranties since the sales are highly profitable. Because the cost of a dealership warranty is likely more expensive than a third-party warranty, it’s worth evaluating other options on the market.
Are Dealership Warranties Worth It?
It can be challenging to determine whether the additional benefits and reliable coverage of a dealership warranty are worth its higher costs. Dealership warranties offer unique advantages in terms of convenience and high-quality service, but you also run the risk of not actually benefiting from the extended warranty.
Many drivers find the peace of mind that comes with knowing their vehicles are covered in the case of a mechanical breakdown worth the price of a dealership warranty.
To make your decision, consider the type of coverage you want, the average cost of repairs for the car you’re buying, and potential add-ons and fees. Research the average extended warranty cost, types of coverage, and perks offered by third-party providers as well.
Dealership Warranty: Conclusion
Dealership warranties, while expensive, can provide more comprehensive coverage than other options. A dealer warranty also offers a convenient way to get your car serviced since it can be done at any automaker dealership.
Whether this type of warranty is right for you depends on if you find the benefits to be worth the extra cost. We recommend that you shop around and compare options to find the best deal for your own situation.
Third-Party Extended Warranty Providers
To help you compare dealership warranties to third-party vehicle service contracts, our team reviewed and ranked the best extended car warranty companies. We’ve highlighted three reputable providers below to help you compare extended warranty plan choices.
| Company | Motor1 Rating | Coverage Levels | Longest Term Available |
|---|---|---|---|
| Endurance | 4.6 | 6 | 8 years |
| Olive | 4.5 | 3 | 3 years |
| CarShield | 4.5 | 6 | Offers month-to-month payment plans |
Endurance: Best Coverage
As one of the largest third-party extended warranty companies on the market, Endurance provides multiple coverage options for car owners and holds a gold-level certification from the Vehicle Protection Association. Our team gave Endurance a 4.6-star rating for its excellent customer service, positive reviews, reasonable costs, and quality coverage options. Another factor that makes Endurance stand out is that it is a direct warranty provider, meaning they pay repair shops without a middleman, making the claims process simple.
All Endurance protection plans come with benefits such as 24/7 roadside assistance, rental car reimbursement, and free Endurance Elite Benefits for a year. As a member, you’ll receive up to $1,000 toward a replacement vehicle in total loss protection. You also have the option to add additional services to your chosen warranty plan.
Read more: Endurance warranty review
Olive: Best Online Warranty
This relatively new, digital-focused extended warranty company offers three coverage options that last for up to 3 years/185,000 miles. Olive is subscription-based, meaning that you can cancel your extended warranty plan at any time. The company has an A+ score from the Better Business Bureau (BBB) and a 4.7-star rating on Google.
Olive offers warranty coverage ranging from its basic Powertrain plan to its exclusionary Complete Care plan. Each one also comes with three deductible options – $100, $250, and $500 – which gives customers the chance to choose between nine price points for coverage.
Read more: Olive warranty review
CarShield: Best Monthly Payments
CarShield offers six types of extended warranties for both new and used cars, with some plans providing coverage for up to 300,000 miles. The company has affordable monthly payments that start at around $100, making it a popular choice among buyers looking for a budget-friendly warranty plan.
A few advantages of an extended warranty with CarShield are the ability to choose the certified repair shop of your choice, 24/7 emergency roadside assistance, and transferable vehicle service contracts. Our team gave the company a 4.5-star rating, and we think CarShield’s comprehensive coverage and low rates are worth considering.
Read more: CarShield review
Dealership Warranty: FAQ
Below are some frequently asked questions about dealership warranties: