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Service Contracts

motor vehicles

Most new vehicles come with at least a three year / 36,000 mile bumper to bumper warranty and manufacturer roadside assistance. For most new cars, the need for major vehicle repairs begin to arise in the fourth or fifth year of the vehicle’s life. Service contracts (sometimes referred to as extended warranties) are optional programs that provide for the repair of certain parts or problems in addition to the vehicle warranty and / or beyond the first three years. These contracts are offered by manufacturers, dealers or independent companies.

When deciding whether to purchase a service contract, consider the following questions:

  • What is the difference between the coverage under the warranty for the vehicle and the coverage under the service contract? Is there anything to gain from a service contract or is it providing the same thing that is already covered by the vehicle warranty?
  • What repairs are covered? What types of repairs are not covered?
  • In what situations may coverage be denied? Are you required to get preapproval before getting repairs done?
  • Who performs the repairs? Can repairs be made somewhere other than at the dealership where the vehicle was purchased?
  • Who pays for labor?
  • Who pays for parts?
  • What are the cancellation and refund policies?
  • What is the deductible? By raising the deductible from $50 to $100, you may save hundreds or thousands of dollars on the cost of the service contract.

Some consumer advocates caution against the purchase of service contracts because they may be more expensive than the repairs they cover. If you are considering a service contract, make sure you understand how much it will cost you and what it will cover. Programs offered by manufacturers tend to offer the most flexibility in terms of who can make repairs, while private companies and dealerships may only cover repairs they perform themselves – in which case peace of mind can quickly turn into a major headache.

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