How Vehicle Warranties Work

We answer frequently asked questions about extended vehicle warranties, from how claims are handled to additional financial benefits.

by NEA Member Benefits

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When you buy a new car, it comes with a factory warranty. If anything goes wrong with the vehicle, the repairs will be covered.

But factory warranties expire. To retain the same kind of coverage that a factory warranty offers, you can purchase an extended vehicle protection plan.

A vehicle warranty is like an insurance plan: If something goes wrong, you take the vehicle to the mechanic’s shop for repair. If the problem is included under the warranty, then the repairs are paid for—even if your car needs thousands of dollars’ worth of repair work.

Before you choose a warranty provider, ask the following questions to get a better understanding of how extended vehicle warranties work:

How are claims handled?

When you have a mechanical problem or breakdown, you take your car to a licensed repair facility. If the vehicle is inoperable, you can call roadside assistance, assuming your extended warranties includes this type of service.

A quality extended vehicle protection plan lets you take your car to any dealer, national repair chain (like Midas or Pep Boys) or any local mechanic who holds a business license to perform automotive repairs. Some warranty plans don’t let you choose your repair center, which can limit your options. 

The mechanic determines the problem, and before any repair work begins, the mechanic contacts the service contract administrator.

Once the repairs have been authorized, the mechanic can begin work. In some cases, an adjuster will come out to look at the vehicle before repairs are made.

What about claims payments?

The claim payment process can be complicated if you don’t choose a good extended warranty. For example, you might be required to submit a form and then wait for a check to be mailed.

The best auto warranties make payment directly to the mechanic via corporate credit card as soon as repairs are authorized. This saves you from being caught between the repair center and warranty administrator. 

How are extended warranties purchased?

You can pay for an extended warranty in a variety of ways. The easiest is to pay for the warranty plan in full at the time of purchase. There are also payment plans of up to 24 months after you pay a small down payment. The better warranty providers accept credit cards and ACH debit payments.

Are there any other financial benefits?

Extended auto warranties are a type of insurance for your car in more ways than one. They’re a good hedge against inflation. The cost of your warranty is set when you purchase it. If the cost of parts and labor increases over time, you’ll still be covered under your original protection plan terms. This saves you money as compared with paying for the expenses out of pocket at inflationary rates.