Extended Warranty.

In plain English

An extended warranty is a contract you buy that promises to pay for certain repairs once the factory warranty runs out. On cars these are usually called vehicle service contracts, and they are often sold by dealers or third-party companies rather than the automaker. They cover specific listed parts, carry their own deductibles and exclusions, and may require repairs at approved shops. Routine maintenance, wear items, and anything outside the listed parts are typically not covered.

01Why it matters

These contracts can cost hundreds or thousands of dollars and are heavily marketed at the dealership, so knowing what is and is not covered keeps you from paying for protection you may never use or that overlaps your existing warranty.

02The math, step by step

A dealer offers a $2,000 service contract with a $100-per-visit deductible covering the engine and transmission for several years. If your transmission fails and a repair would cost $3,500, the contract saves you most of that. If instead you mainly need brakes, tires, and oil changes (all excluded), you may pay $2,000 and rarely use it. The real cost is the $2,000 you could have invested instead, money that would have kept working for you over the years you would otherwise hold it.

03What this is NOT

04Receipts

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