Thinking of keeping your car instead of buying a new one because of the current tight economy? If so, an extended warranty can provide peace of mind if you're worried about repair bills.

What is It?
An extended warranty is usually sold for a three- or four-year period and kicks in when the manufacturer's original warranty on your vehicle expires. No matter where you buy the warranty, it's usually honored at your dealership and at most service stations. Ranging from basic to premium coverage, extended warranties are based on make, model and mileage.

What to Buy
"Make sure it includes a high-tech package to cover features like advanced navigation systems and sensors," advises Jason Goldsmith, CEO of Carchex, a free online car-buying referral and advice service. The website has a warranty comparison tool with several different levels.

"For a 3-year-old Lexus, you'll want to get what's called exclusionary coverage," Goldsmith advises, "because the car has complicated electronics. Policies should also provide benefits such as towing, trip interruption and roadside assistance."

Goldsmith also recommends wear-and-tear and seals-and-gaskets coverage. "If the driver's power window, for instance, begins to go down slower than the other windows, it must fail completely before it will be repaired unless you have wear-and-tear coverage. If a seal fails, causing another component to fail, and you don't have seals-and-gaskets coverage, the component probably won't be covered."

However, wear-and-tear coverage is unusual, according to Doug Blumenthal, owner of Townline Auto Sales and Service in Danielson, Conn. For example, he says, replacement of timing belts, a normal wear-and-tear item, is rarely included in warranties.

What to Spend
Warranties typically range from $1,200 to $2,100. "A Honda Accord will need less coverage than a Ford Taurus because Hondas have fewer breakdowns. The worst mistake is to go for price vs. coverage," Goldsmith says.

Blumenthal agrees, and he's typical of dealers who offer three different grades of warranties and five classes of cars for pricing that ranges from $1,200 to $1,500--though he'll sell at his cost, $900, if necessary. He's a particularly firm believer in extended warranties on every pre-owned car he sells. "Used cars need a good eye for body work and paint work [that can indicate a crash]. If the car is 'clean,' I'll recommend a comprehensive extended warranty tailored to that particular vehicle."

What to Know
Here are some tips for picking the right extended warranty for you and your car:

• Research your vehicle's reliability rating at J.D. Power and Associates and Consumer Reports.
  
  
• Ask a mechanic about the most common problems with your model, when they typically occur and the average cost to repair. Then shop for the warranty that fits.
  
  
• Be aware that dealers like to sell an extended warranty when you buy a new vehicle. But if you add the cost to your car loan, you'll end up paying interest on the warranty along with the loan.
  
  
• Always ask for the complete policy to be e-mailed to you so you can study it before signing. Many companies have secure online contracts. A Carchex salesman will go over the contract with you on the phone if necessary. "Don't just read the warranty company's booklet or pamphlet. Download the actual contract before you agree to it," Goldsmith recommends.