Picture this: It’s one month after your five-year old car’s warranty has expired when it starts shuddering slightly every time you accelerate. Rather than being a temporary issue, as time goes on it only gets worse. The mechanic’s diagnosis? It’s probably a manufacturing defect – and fixing that doesn’t sound cheap.
Moments like these might leave you wondering whether you should have taken out that extended car warranty the dealer offered you after all.
But how do extended car warranty plans work? Would your car’s hypothetical repair job have been covered? Is there a difference between extended warranties for new and used cars? And what – if any – implications does your car warranty have for your car insurance?
We’ve put together a guide to answer these questions so you can decide whether buying an extended car warranty might be the right choice for you.
What is a car warranty?
A warranty is a voluntary promise from a car manufacturer or dealer about what they’ll do if something goes wrong with your newly purchased car, for a specific period of time.1
New cars typically come with a manufacturer or factory warranty,2 which usually lasts for three, five or seven years,1,3 or for a certain number of kilometres.1
Most used cars bought from a dealer will automatically be covered by a free second hand car warranty, called a statutory warranty,2 or a dealer guarantee in some states.4 These are quite limited in duration,1 and work slightly differently depending on where you live.2 You can learn about them in more detail in our Guide to Used Car Warranties.
What is an extended car warranty?
An extended car warranty is an optional type of warranty which you may be offered, usually for an additional cost, when you buy a car from a dealer.1,4
On paper, an extended car warranty may add some extra time, kilometres or cover to your car’s original warranty,1,4 and there are two types:
- Extended factory warranty – if you’ve bought a brand new car, this could extend the life of the manufacturer warranty that came with it.5
- Extended dealer warranty – if you’ve bought a used car – or your car’s factory warranty has ended6 – you may be offered a dealer or third-party extended warranty to provide cover beyond the statutory warranty or dealer guarantee.4
How does an extended car warranty work?
Extended factory warranties and extended dealer warranties might sound similar. However, while they’re both optional and a business must not pressure or mislead you into buying either of them,7 they can operate differently in terms of what they cover and the conditions attached.
How do extended factory warranties work?
You may be able to purchase an extended factory warranty once your new car’s warranty expires.5 Alternatively, a car manufacturer might offer to extend your factory warranty provided certain conditions – often around servicing requirements – have been met since you first bought the car.1
Usually, this type of extended car warranty will replicate your existing factory or manufacturer warranty,5 covering you for costs to repair your vehicle if it’s found to have a mechanical or design defect.1
However, in other cases, the cover provided may differ from the original factory warranty.8
“There could be exclusions for things such as wear and tear, modifications and specific parts or systems,” says Jodi Bird, Managing Financial Content Editor at consumer advocacy group CHOICE.
“There could also be special conditions you have to follow, such as servicing the vehicle at a specific place during the whole warranty period.”
How do extended dealer warranties work?
Car dealers may offer to sell you this type of extended car warranty when you’re buying a used car or when your car’s factory warranty has expired.1,6 The cost can range from a few hundred dollars per year into the thousands.9
“Extended dealer warranties may not offer the same cover as the manufacturer’s warranty and can be very restrictive in what they cover,” says Bird.
For example, they may restrict your choice of mechanic and the parts used if something goes wrong with your car,6 or exclude certain parts altogether.10 Some may even include clauses which give the warranty provider wriggle room around conducting repairs.10
“Often, dealer extended warranties also require you to have the car serviced exclusively by the dealer who sells you the car – and missing a single scheduled service can void the warranty,” adds Bird.
Is buying an extended vehicle warranty worth it?
Whether an extended car warranty is worth investing in is ultimately up to you to assess, based on your individual circumstances, priorities and even your budget. Whether you bought your car new or second hand may also be a factor.
While extended car warranties are technically required to offer something above and beyond the protection you’re legally entitled to under the Australian Consumer Law,4,11 the details contained in the fine print can help you determine whether an extended warranty has real value.3
Are extended car warranties worth it for new cars?
The answer to this question might depend on whether you’re considering an extended factory warranty or an extended dealer warranty.
“Extended factory warranties are usually less restrictive than dealer warranties,” explains Bird, “but you still need to read the terms and conditions carefully before signing.
“In most cases, the initial three or five-year manufacturer’s warranty is good enough.”
Plus, even after your car’s original manufacturer’s warranty expires, you still have protection under the Australian Consumer Law,6 and are entitled to a repair, replacement or refund if you’ve bought a faulty car.8
So, let’s revisit that manufacturing defect that resulted in all that shuddering at the beginning of this article, shall we?
Under Australian Consumer Law, a dealer wouldn’t be able to avoid remedying that situation just because it occurred one month after the manufacturer warranty expired.11
Interestingly, while some car brands, such as Mitsubishi and MG, have recently moved to provide longer than five-year car warranties as a standard offering, Toyota – the biggest brand in the market – doesn’t believe it’s necessary. The reason? Australian Consumer Law.12
“The reality is, the Australian Consumer Law is the best warranty Australia offers,” Toyota Australia Senior Executive Advisor Sean Hanley told Drive in September 2025. “You can’t beat it.”12
Are extended car warranties worth it for used cars?
The Australian Competition & Consumer Commission (ACCC) warns that an extended warranty for used cars offered by a dealer may or may not give you any extra rights above and beyond the ones you already have under the Australian Consumer Law.2
Called consumer guarantee rights, the law says that a used car – or a new car – must:2,13
- Be of acceptable quality, including that it’s safe
- Be fit for any purpose disclosed before the sale
- Match the description provided or the demonstration model
- Have spare parts and repair facilities available
- Come with title and undisturbed possession.2,13
Consumer guarantee rights last for a “reasonable time” after purchase.8 So, if there’s a problem with your used car because it fails one or more of those consumer guarantees, depending on its age and condition, you may be entitled to have it repaired, replaced or its cost refunded – even after a statutory warranty expires.7,14
What to consider before you buy an extended car warranty
As a general rule, the ACCC suggests checking to make sure an extended car warranty provides benefits that are greater than what you automatically receive under the Australian Consumer Law.5 But you might like to ask yourself the following questions too…
How much will an extended car warranty cost?
The ACCC also recommends making sure an extended car warranty provides value for money.5 Consider comparing its cost with the price of repairing or replacing your vehicle yourself. For example, if it ends up costing you more than you paid for your used car, it might not be worth it.8
Instead, you might like to think about building an emergency fund to help cover repairs that aren’t covered by Australian Consumer Law, as they crop up.10
Will I have to pay extra?
Look out for fees that may apply if you make a claim under your extended car warranty.8 “Extended car warranties may have an excess or caps on payouts,” says Bird.
Who’s providing the extended warranty?
Cover and exclusions may differ depending on whether an extended car warranty is provided by a manufacturer, a dealer or a third party. Regardless, what an extended warranty does – and doesn’t – cover can differ from the car’s original warranty, so you might like to check the fine print carefully.8
How does an extended car warranty compare to car insurance?
In short, they’re two different things. “ Warranties shouldn’t be confused with car insurance,” says Bird.
While a car warranty may cover your car for design or mechanical faults,1 car insurance can cover events such as theft, accidental damage to your car and other people’s and even damage caused by weather events, depending on the level of car insurance you choose.15
Now that you know how an extended car warranty might work, the difference between factory and dealer options, and the consumer guarantee rights you’re already legally entitled to, we hope you feel more equipped to decide whether buying an extended warranty is right for you.
Either way, don’t forget that a car warranty doesn’t cover your vehicle for the same events as insurance. To discover car insurance that’s a little more you-shaped, you might like to consider starting a quote online or by giving us a call on 13 9684.
1 Source: Canstar – What is a Car Warranty and What Does it Cover in Australia?, April 2025
2 Source: Australian Competition & Consumer Commission – New and second-hand cars
3 Source: CHOICE – New car? The extras that are worth getting, March 2024
4 Source: NSW Government – Dealer guarantees and warranties, 2026
5 Source: Australian Competition & Consumer Commission – Just bought a new car?, 2018
6 Source: Consumer Affairs Victoria – Warranties on new cars, October 2023
7 Source: Australian Competition & Consumer Commission – Warranties
8 Source: CHOICE – Do you need an extended warranty?, June 2024
9 Source: Shell – Extended warranties: are they worth buying?, August 2022
10 Source: CHOICE – Car warranties and dealer servicing, May 2020
11 Source: Commonwealth of Australia – Motor vehicle sales and repairs: An industry guide to the Australian Consumer Law, 2018
12 Source: Drive – Toyota doesn’t see need to extend warranty because of Australian Consumer Law, September 2025
13 Source: NSW Government – Buying a used vehicle, September 2025
14 Source: Consumer Affairs Victoria – Warranties on used cars, June 2025
15 Source: Moneysmart – Choosing car insurance
