For companies that are new to the U.S. market, they might be, said Heyong Tak Lee, a University of Iowa Tippie College of Business marketing researcher who studies warranties. He said consumers don’t often have enough data available to accurately estimate the likelihood of repair for a brand they’ve never heard of. In those cases, an extended warranty can provide peace of mind to the new car owner.

Lee said it’s often challenging to find transparent pricing for extended warranties online, as dealerships rarely advertise their prices. In many cases, consumers only learn about the cost and terms during discussions with the dealership after they’ve already committed to buying the vehicle, limiting their ability to negotiate effectively.

Lee offered tips on whether an extended warranty is right for them.

• Buyers should gather information about extended warranty prices and terms while still negotiating the purchase. Visiting multiple dealerships can also provide insight into market prices for extended warranties, as costs can vary even between dealerships representing the same automaker.
• Estimate the potential repair costs the car buyer may face over time. Key factors to consider include the failure rates of the auto parts and out-of-pocket expenses that consumers would incur for repairs. If the estimated repair costs are high enough, then an extended warranty might be worth it.
• Consumers must carefully review the terms of the extended warranty, paying close attention to which parts are covered, the deductible amounts, and any additional terms or conditions.
• If the warranty is backed by a third-party provider instead of the manufacturer, consumers should also verify which dealerships accept the warranty.