How Much Money Do Dealerships Make On Extended Warranties?
Extended warranties offered by car dealerships provide a considerable amount of coverage and often offer perks similar to those of a third-party provider. However, if you arent careful, you may overlook markups on your car loan, add-ons you dont need, or coverage that doesnt last the amount of time you need. You may have also noticed that extended warranties from a dealership can be more expensive than ones from third-party companies. It may have left you wondering how much money dealerships make on warranties and whether a dealership extended car warranty is even worth it. If youre debating whether to buy an extended warranty plan from a dealership or a third-party company, we recommend comparing several quotes to decide what will work best for your vehicle. Click below to get started with quotes from a few of our recommended reputable extended car warranty companies. In this article:  Pros And Cons Of Dealership Warranties  When youre offered an extended warranty when purchasing your vehicle at the dealership, it can be difficult to know on the spot what type and length of coverage you need, as well as what cost to expect. 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 it its 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. Youll have access to higher-quality service from licensed dealerships and factory-trained technicians who use factory parts for your car. Buying a manufacturer-backed extended warranty from a dealership can give you more comprehensive coverage than one backed by a third party. Youll have access to higher-quality service from licensed dealerships and factory-trained technicians who use factory parts for your car. Benefits: Dealership warranties offer an array of benefits like roadside assistance and rental car reimbursement. Manufacturers warranties also remove the hassle of paying for services up front and having to be reimbursed later. Dealership warranties offer an array of benefits like roadside assistance and rental car reimbursement. Manufacturers warranties also remove the hassle of paying for services up front and having to be reimbursed later. Convenient for car buyers: Buying an extended warranty at the same time you purchase your used or new vehicle eliminates the need to search for one later. Any deals youre offered during your car purchase may make warranty pricing seem more reasonable as well, and you may even be offered a reduced down payment. Cons Of Dealership Warranties  Take the time to look over some of the disadvantages of buying a dealership warranty as well:  Unnecessary 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. 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 the overall plan isnt as customizable as a third-party warranty plan. 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 the overall plan isnt as customizable as 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, theres a chance it could expire before youll need any repairs. Dealerships make most of their big profits from aftermarket sales, which includes selling gap insurance, car products and accessories, and extended car warranties. Each warranty plan a dealership sells can add up to $2,000 per purchase to its bottom line. The average dealer generally makes up to half of the selling price of an extended warranty. 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 youll likely bring your car to their service department whenever you need repairs or factory parts replaced. Because dealerships make a significant portion of their profits from aftermarket sales rather than new car sales, they want 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 the extended warranties they offer since these sales are highly profitable for them. Because the cost of a dealership warranty is likely more expensive than a third-party warranty, it is worth evaluating your options and trying to negotiate a lower price for the dealership warranty, if that is the plan you choose. It can be challenging to determine whether the additional benefits and reliable coverage of a dealership warranty are worth the higher costs. Dealership warranties offer unique advantages in terms of convenience and the high-quality service they provide through factory-trained technicians who use manufacturer-recommended parts. However, you also run the risk of not using the extended warranty to its full benefit. Many drivers find the peace of mind that comes with knowing their vehicles are covered in the case of a mechanical breakdown worth the higher price of a dealership warranty. To help make your decision, consider the type of coverage you would want, the average cost of repairs for the car youre buying, and potential add-ons and fees you want to avoid. Research the average extended warranty cost, types of coverage, and perks offered by third-party providers as well so you are prepared to compare those packages to the dealership offer. Recommendations For Third-Party Extended Auto Warranty Providers  To help you compare dealership warranties to third-party vehicle service contracts, our team has reviewed the best extended car warranty companies and rated them based on average cost, coverage, customer service, available perks, and more. We highlighted three reputable providers below to help you determine what type of extended warranty is right for you. Company Motor1 Rating Coverage Levels Longest Term Available Endurance 5.0 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 5.0 overall rating for its commitment to excellent customer service, positive reviews, reasonable costs, and quality coverage options. All Endurance protection plans come with additional benefits such as 24/7 roadside assistance, rental car reimbursement, and free Endurance Elite membership for a year. As a member, youll have access to a variety of awards and vouchers that can be used at most major stores. You also have the option to add additional services to your chosen warranty plan. To find out more about this provider, check out our Endurance warranty review and get a free quote below. Olive: Best Short-Term Warranty  This relatively new, digital-focused extended warranty company offers three coverage options that last for three years, or until your car reaches 185,000 miles. Olive is subscription-based, meaning you can cancel your warranty plan at any time. The company has an A+ rating 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 plan also comes with three deductible options  $100, $250, and $500  which gives customers the chance to choose between nine different affordable price points for coverage. To find out more about this provider, you can take a look at our complete Olive review and get a quick personalized quote below. CarShield: Best Value  CarShield offers six types of extended warranties for both new and used cars, with some plans providing coverage up to 200,000 miles. The company has affordable monthly payments that start 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 if you sell your car. Our team gave the company a 4.5-star rating, and we think CarShields comprehensive coverage and low rates are worth considering. Read our CarShield review to learn more and click below to receive a free quote. Your decision to buy a dealer extended car warranty should be based on the type of coverage you want and what youre willing to pay. Many drivers find value in the peace of mind a dealership warranty offers and the high-quality service it provides, but some find the lower cost and customizable options of a third-party warranty more appealing. Make sure to do your research and compare quotes from a few providers to determine the best option for you. Several factors affect the overall price, but the average extended car warranty cost is about $2,800. There are many affordable third-party providers such as Olive, CarShield, and Uproar.car that we recommend when searching for the best value for your extended car warranty. Dealerships lean on selling extended warranties because of how profitable they are. Customers who buy a dealership extended warranty with a low deductible will be more willing to bring their car to the service department for repairs, which increases the overall gross profit a dealer will make for the life of the car. Methodology  In an effort to provide accurate and unbiased information to consumers, our expert review team collects data from dozens of extended auto warranty companies to formulate rankings of the best providers. Companies receive a score in each of the following categories, as well as an overall weighted score out of 5.0 stars.