Extended warranties apply to automobiles as well as other consumer products. They are normally not worth their cost. In fact, these "Extended Warranties" are not warranties at all. They are more properly called service contracts. These agreements are usually sold by car dealers for $1,000 to $3,000 with a new vehicle. Through a service contract, you pay an independent warranty company, an administrator, up front to pay for repairs for covered problems with your car in the future.

Car Dealers try to scare you into purchasing a service contract for your peace of mind after your factory warranty expires. This is because service contract sales are a huge profit maker for a car dealer. Typically, 50% or more of the selling price goes to the dealer as the seller. However, rarely do these "Extended Warranties" provide you with the protection that you are led to believe they have and would expect.

Usually these contracts don't cover the following:

Are you lacking, vehicle maintenance records? If you fail to produce records proving that the regular maintenance schedule was followed your in trouble. Not just maintaining the vehicle, but proving that the vehicle was maintained. Without proof you're not covered.

Wear and Tear? Normal wear items such as brake pads and shoes, gaskets, hoses, clutches, shock absorbers, and belts are typically excluded. These are the items that are expected to "wear out" through normal use of the vehicle and are the owner's responsibility. These items are the ones most likely to require repair during the first six years of your car's life.

Breakage of a noncovered part. Damage caused by non-covered parts are not included in your contract coverage even if they do cover items that are under contract. For example hoses are not covered by the contract, so if a hose breaks and causes major engine damage it won't be covered even if major engine failure IS covered.

Tear Down Diagnosis? Under many service contracts, prior to servicing the car, the repair shop will require the consumer to agree to be responsible for the tear down charges if the failure is not due to a covered part. Some repair facilities will even require the consumer to pay a deposit before they will begin to diagnose the problem.

Limited repair options. You may have a hard time getting repairs on your vehicle, because the service contract limits where you can have the repairs done. The agreements sometimes severely limit who can work on your car by restricting the repairs to a certain number of places. On top of that, some service contract providers have a bad reputation in the service center won't even honor the contract. They'll ask you to pay for the repairs, and you have to try and get reimbursed for yourself.

if you consider all these hoops that you have to jump through, it's hard to imagine it having any peace of mind by purchasing an extended warranty. Of course, odds are you're never going to use the contracts anyway, on the person who sold it is going to be making the big money. Generally, your lot better off taking the same money and saving it for any emergencies.