Even worse, some owners accept the financial burden of an extended warranty, just to discover that the mechanical problem they later experience is not covered by their plan. These difficulties can be easily avoided by understanding what exactly extended car warranties cover, what they do not cover and the differences between the plans on offer.

An extended car warranty is best thought of as a pre-paid repair contract. It obligates the warranty company to pay for repairs that are covered by the plan which they have signed with the car owner. These warranties are usually offered by retailers or car manufacturers. The contract typically specifies the time period and/or the number of kilometres for which it is valid, and the mechanical systems that it covers.

These are some of the more common arrangements:

• The extended warranty typically covers the owner for anything from five to eight years. The coverage begins from the day the agreement is signed, which is typically in the first year of the ownership of the car, runs concurrently with the manufacturer’s basic warranty, and continues to cover the owner when the basic warranty runs out. To ensure that car owners do not wear out their vehicles completely, the time period is typically supplemented with a kilometre-per-year measure, which ranges from 90,000 to 120,000.
• Some plans cover only mechanical breakdowns, while others also cover the replacements of parts that wear out over time. In addition, some plans cover everything that needs to be repaired or replaced, while other plans exclude Technical Service Bulletins, which are released by manufacturers to notify vehicle owners of model-specific problems that need attention.
• The most basic plan is a Power train plan, which covers the engine, turbo, transmission and CV joints; basically, all the parts through which the oil runs. A more advanced plan includes all these, plus the radiator, steering rack & pump and ball joints. The next step up is a plan that covers all the above systems together with air conditioning and electrical systems like power windows and doors. Finally, there is the bumper to bumper plan, which covers almost everything, but often excludes pads, shoes, rotor & drums.
• Many extended warranty plans include road-side assistance in the case of a mechanical breakdown, which covers the cost of towing and often even of lodging and meals until the owner can make his way back home.
• For those who experience a breakdown and cannot be without a vehicle, there are also plans that include allowances for car rentals until repairs have been completed.
• Some plans also cover the repairs if the owner loses keys or locks himself out.

If a car buyer buys a vehicle with many electrical and electronic features, and if they wish to keep the car for more than three years, an extended warranty that covers at least some of the above repairs is certainly advisable.