Service Contracts and Extended Warranties

When buying a new or used vehicle, your car dealer may encourage you to buy a service contract or extended warranty. These products are designed to cover mechanical breakdowns occurring after the expiration of the manufacturer’s warranty. Be wary of such offers. While an extended service contract can, in some cases, provide beneficial coverage, many of these products are very expensive for the coverage you are getting. Do not buy until you have carefully reviewed the terms of coverage and have had a chance to shop around to compare the product to others available in the market.

Tips:

• Review the fine print in the extended service contract. It will likely limit the coverage available to you. Generally, the coverage will be much more limited than the coverage included in the manufacturer’s warranty.
• Find out who backs the service contract. Typically, it is not the dealer or the marketer who is trying to sell you the product. When you find out who backs the service contract, check out that company to find out if it has a good claims payment history.
• If you are interested in a service contract or extended warranty for your vehicle, shop around. These products are available not only from the dealer but also from other providers. Review available products online. Negotiate the price. If the service contract is offered by the dealer, the dealer may be willing to cut its sales commission and lower the price.
• If you buy a service contract through a car dealer, make sure the dealer forwards your payment to the company providing the coverage and provides you with a receipt.
• If you are dissatisfied with a service contract you have purchased, you typically have the right to cancel the contract and receive a refund of unearned premiums. You can always cancel within the first 30 days and receive a full refund if you have made no claims under the service contract.
• Never buy an extended automobile warranty from a telemarketer.