Is That Extended Car Warranty Offer a Scam? Here's What You Need to Know

"We've been trying to reach you about your car's extended warranty" is a message that seems to follow car owners around incessantly. It pries on our worst fears: engine failure, transmission issues, other expenses that we wouldn't be able to afford covering ourselves, were the worst to happen.

Sometimes these extended warranties—known more accurately as extended service agreements—are everything you hope they'll be, and can end up protecting your wallet and your peace of mind. But many other times, they can be your worst nightmare. Extended warranty scams are abundant, and without knowing the red flags, it's easy to spend your hard-earned money on a useless warranty.

Knowing the facts about how extended warranties actually work is one of the best ways to protect yourself, because while you may sign up for a warranty that feels like a great buy, if you don't read the fine print, you may end up feeling like you were ripped off.

Let's get into what you should know—because avoiding scams, or situations where you feel like you were scammed, is a lot simpler than you think.

What's behind those robocalls, anyway?

When my last car was two and a half years old, the calls started. Some of them were simply robocalls. Other times, there were real people on the other end of the line. Then there were emails and letters, too. They were insistent—five or more calls a day, for months.

If you, too, are getting these calls claiming to offer you an extended warranty that could save you major money on potential car expenses—and if you're like most Americans, for whom an unexpected $1,000 car repair bill would put a huge damper in your family budget—you might be wondering if there's any truth to the calls. Usually, there isn't.

"Consumers receive phone calls from scammers, some of whom have purchased or acquired data about a consumer's vehicle to make themselves seem legitimate," says Kathleen Long, vice president of growth at RepairPal, who has years of experience working with extended warranties. "They inform the consumer that their factory warranty is about to expire (or has already elapsed) which may be true, and then they prompt the consumer to provide personally identifiable information (PII) which can then be used to defraud them."

Robocalls are almost always scams. But what about the calls where a real person is on the other line? "My rule of thumb is, if a stranger is reaching out to you to sell you something that you haven't asked for, don't make an immediate purchase," says Keith Berry, auto reporter at Consumer Reports.

But Berry doesn't stop there. Aside from doing your research, Berry says, "The FTC says not to engage with a company that reaches you with an illegal call, and I agree. I wouldn't purchase anything from anyone who calls unsolicited."

Handle those calls with care.

Getting these calls can be frustrating, especially because it feels like you can't get them to stop. But there are ways to handle the calls—in order to avoid being scammed (or worse, having your identity stolen). Firstly, do not give any of your personal information to any extended warranty company that calls you unprompted.

"If the call is legitimate and you are interested, they should be able to direct you to a website that has more information," says Long. "And they will never ask you for payment information on that initial phone call, because this extended warranty is a contract, and you should be presented with the terms before paying for anything." Personal information includes your full name, address, vehicle identification number, financial information, and so forth.

In addition, if you receive a robocall, do not press any numbers if they request you do so; instead, hang up right away. You can also block the number from calling you again by going into the "settings" feature on your phone.

Looking at your caller ID, if you have it, isn't enough. While a legitimate company would have their information listed, scammers can spoof those numbers. If you get a call and you are interested in the policy, do your own research after hanging up. Look for reviews and only purchase from the website, or by calling the publicly listed number yourself.

Misunderstood policies can be seen as "scams"—they're not.

Before buying any extended warranty, it's critical to do your own independent research. And here's the thing: While some policies are all-out scams, and some are actually great, many others fall into a gray area. They aren't scams, but they aren't a good value either.

There are also legit policies with rules that are often misunderstood by consumers—leaving folks feeling like they've been scammed, though they haven't been.

One thing to keep in mind: "There is no such thing as a comprehensive warranty," says Long. "Even the best policies with the most coverage have exclusions."

Here are some policies and situations to watch for that aren't scams, per se, but aren't a solid deal either.

Inclusionary policies

These are some of those policies that fall into a gray area. They only cover auto parts that are explicitly listed on the policy.

Policies that only cover a certain dollar amount

These amount-based policies—which cover specific amounts for specific parts and labor, rather than straight-up paying the bills—are another version of this gray area. The policy might be great, but if it pays less than market average, you'll be left on the hook for the balance after your mechanic presents you with the bill.

This is perfectly acceptable, but it can certainly feel like a scam when you're faced with it. So be sure to read the fine print, and ask before you buy if you can't find the answer.

Repairs denied due to lack of maintenance

This is another common problem that may feel scam-like. The documents that you sign when purchasing an extended warranty don't just outline what the warranty is responsible for, but what you are responsible for as well. And one of your responsibilities is to maintain your vehicle.

Let me explain another way: Your check engine light starts flashing while you are driving, and your car starts shaking. You pull over immediately, and call for a tow truck. After your car finally gets to the mechanic, you, of course, present your extended warranty. A few hours later, after some extensive diagnostics, your mechanic finds that your engine has a dead cylinder, needing replacement. You breathe a sigh of relief, knowing that your warranty will take care of it.

But, unfortunately, that's not how things wind up. The insurance company sends out an inspector. The inspector finds that there is significant sludge in the engine, and the oil is thick and dark. The warranty company immediately requests your proof of maintenance, including your receipts for oil change services.

If you can't produce them, your warranty will reject your claim. Maintenance is your responsibility, and if parts fail in systems that you didn't maintain per manufacturer's maintenance recommendations, your policy won't be of much help.

Finally, extended warranties do not cover wear components, with very few exceptions. That means those oil changes for which you need receipts? You'll need to pay for those out of pocket. Same with items like brake pads, transmission fluid, belts, hoses, power steering fluid, and tires.

But the biggest waste of money...

…is buying a warranty, a legitimate one, but not actually using it. A 2014 Consumer Reports survey found that a whopping 55 percent of extended warranties are never used. That's thousands of dollars down the drain, simply because you bought a warranty and...forgot about it.

So before you buy an extended warranty, be sure to do your research to find one that's worth it—but don't just leave it at that. Find a way to remind yourself that you have this great extended warranty, because you certainly don't want to throw that money away.