The finance manager will start talking about an extended warranty. An extended warranty is actually an extended service contract, which covers the cost of certain repairs and problems after a car's factory warranty expires.

Do you need an extended warranty?

Extended warranty is needed depending on the amount of miles and the time you keep your car or drive the car. Extended warranties on new cars can cover you up to 100,000 miles. If you are the average driver that drives 15,000 to 25,000 miles per year and have a loan for 5 years you will still be making payments on a car with no warranty. In this case, you should buy coverage for the term of the loan.

But let's say you plan on keeping a car long after its original warranty expires. Should you purchase an extended service contract? Answering these questions might help you decide.

Answering these questions might help you decide:

• Do you hate surprise expenses, especially costly auto repairs?

• Will the cost of replacing a pricey electrical part or air conditioner or transmission bust your monthly budget? Or do you have a few thousand dollars tucked away in an emergency fund for just these kinds of expenses?
  

• How long do you plan on keeping the car after the original warranty expires?
  

• Would you sleep better at night knowing that certain major repairs will be covered under an extended service contract? Or would you rather risk it and pay for repairs when and if they are needed?

Another thing to consider is your car's reliability. On the one hand, new cars are more reliable than ever, so car owners can expect fewer repairs. On the other hand, repair costs, while infrequent, could be quite high, thanks to the complex electronics and computer circuitry under the hood.

Two types of warranties

There are two key types of extended warranties: those backed by the car's manufacturer and those offered by independent companies, also known as aftermarket warranties.

An extended service contract backed by an auto manufacturer is probably your safest bet. These contracts encompass a wide range of repairs and services. The repairs can be done at any authorized dealership and tend to be approved without a hitch. You won't pay a penny for approved repairs unless your contract includes a deductible.

An extended warranty from an independent company could cost half as much as an extended service contract from a manufacturer. But the quality of this kind of contract varies widely from company to company. Shop carefully. Ask about the repair network -- how many garages are authorized to do repairs and in what parts of the country? If there's not an authorized garage in the area, will they reimburse you for repairs at the nearest facility?

Warnings on warranties

There are tons of really crummy extended warranty offers out there. Be leery of unsolicited offers that arrive by mail or e-mail. Only do business with a company you know and trust. One good source for an extended service contract is the dealer as they are in the business of selling and repairing cars.

Our service contracts also cover you for trip interuption, so if the car breaks down when you are out of town they will reimburse you a set amount for food and lodging. Ours also will cover you for towing, rental car, and more. See dealer for details.