A purist definition of an extended auto warranty is coverage that has been extended by the manufacturer, or the original warranty company, for an additional sum of money. More commonly defined, an extended warranty simply refers to the added duration of warranty coverage that you purchased additionally, possibly from a different company.
Purchasing an extended warranty earlier will often be cheaper. You will not get double warranty coverage by extending your warranty just as the manufacturer warranty expires. The added duration on an extended warranty contract will simply be tacked on, extending your coverage. It is not altogether unreasonable to look into buying an extended warranty right after buying a car.
Most extended warranties cover normal wear-and-tear breakdowns. However some warranty companies looking to wriggle through loopholes will attempt to claim that the warranty they sold you only covers mechanical breakdowns. Since a lot of mechanical breakdowns occur because of wear-and-tear, especially as a car ages, it is very important to read the details in a contract carefully and fully comprehend what you are buying.
Be sure you understand the warranty contract lingo. Ask the company to clarify if you are not explicitly certain about some of the terms. Definitions and terms used may vary somewhat from company to company. Even before talking to a company, you should have already researched which companies are more credible than others; check the Better Business Bureau's website to see consumer ratings and comments on a particular company. Remember that, much like insurance, a cheap warranty does not necessarily mean better.
Generally warranties come with perks, such as: towing, rental and travel reimbursement. However, be sure that all of these things are down in writing in the warranty contract or you might find yourself a few hundred dollars short. Also be clear on whether the warranty company will take care of the bill directly, or if they will reimburse you. Always choose direct payment over reimbursement if possible.
You will not find extended warranties for all cars. Exotic cars with expensive engines and costly parts are unlikely to have any company willing to offer extended warranties beyond the basic one. Some cars with too many miles on the odometer may be difficult to find coverage for as well, though some companies will sell extended warranties for certain models that have up to 150,000 miles.
Companies like EasyCare and WarrantyDirect have rock solid reputations that sell warranties. Many other companies sell extended warranties on the web and the important thing is to do your research and find the service that best fits your needs.