Vehicle service contracts are designed to cover unexpected or expensive repairs. However, they can be costly to add on, particularly if you’re already covered by a warranty or insurance. They can be helpful, but it’s essential to ensure that you’re getting the maximum benefit before investing extra money.
What vehicle service contracts are
An optional vehicle service contract, also known as an extended warranty or auto service contract, covers specific vehicle repairs or problems after the original warranty provided by the dealer or manufacturer has expired.
Service contracts can be bought from manufacturers, dealerships, and private companies. Usually, you can purchase them after buying the car within a specific time frame, such as up to the end of the first year of ownership.
To request repairs for your car covered under the contract, you should file a claim with the provider. They will then send payment directly to the repair shop, but additional steps may be required to process and confirm the claim, depending on your provider.
What does a service contract cover?
Service contracts provide coverage for parts that are more prone to breaking down after the warranty period ends. This usually includes repairing significant vehicle components like the engine, transmission, and air conditioning, as well as supplying assistance for roadside incidents and reimbursement for rental cars.
Before signing up, it is important to read the policy as coverage differs with each provider and contract. There are several exclusions listed, such as routine maintenance, normal wear and tear, natural disasters, theft, and vandalism. If a service is not mentioned in the policy, assume that it is not covered.
It is possible that your policy does not include coverage for diagnostic testing or for mechanic visits needed for repairs. This means that you might be responsible for paying for these services, even if your extended warranty covers the part involved.
Service contract vs. manufacturer warranty
To determine if coverage overlaps and when it applies, compare the auto service contract with your car’s warranty before making a purchase.
- New or certified pre-owned (CPO) vehicles come with a warranty covering defects and repairs resulting from manufacturing. These warranties are active for a specified period, such as three years or 30,000 miles. Third-party warranties do not offer the same coverage and terms as the original manufacturer’s warranty.
- Service contracts for vehicles typically become effective after the manufacturer’s warranty has expired. They are an additional expense and can be bought later, whereas warranties are included in the car’s original price.
Your other financial products, such as auto insurance and credit card, may also provide similar coverage such as rental car expenses, roadside assistance, and trip interruptions. If you purchase a vehicle service contract with similar benefits, make sure it doesn’t duplicate your existing coverage.
How to get the most out of your service contract
While negotiating the price of an extended warranty for your car may not be an option, you can still shop around for better deals. Some providers may allow you to pay over a period or reduce the coverage term to lower the cost. However, the options available may vary depending on the provider. When comparing different quotes for auto service contracts, consider these features.
- Check the cost. The price you pay for your car insurance is affected by factors such as the make and model of your car, its condition, the coverage you choose, and the length of your contract. Additionally, there may be a fee involved in purchasing the policy. Typically, car insurance policies cost around $2,000 to $4,000 or higher.
- Consider the deductible. You might have to pay a deductible similar to insurance when using your service contract. It could be either per visit or repair, so refer to your contract to determine the specific amount you need to pay.
- Ask what’s included. Ensure you know what your policy covers and doesn’t cover and whether it can be altered. Remember that if a part that is not covered causes damage to a covered part, your service contract provider may reject your claim.
- Know the fine details. Please review a list of companies that offer services and learn how to file a claim. Additionally, if the service contract exceeds the duration of your car ownership, inquire about the possibility of transferring it and any associated fees.
Learn about the underwriter. You can find service contracts offered by insurance companies, dealerships, or independent sellers. To learn more about the quality of these contracts, you can read online reviews and consult the complaint database of the Consumer Financial Protection Bureau and the Better Business Bureau.
After signing up for the policy, make sure to obtain written confirmation from the dealer that they have sent payment to the correct administrator. Additionally, it’s important to keep track of car repair and maintenance records, as the service contract may not cover preexisting conditions. These records can also serve as proof that you have taken preventive measures.
If you experience issues with the auto service contract, attempt to settle the conflict with the service provider initially. If that approach doesn’t work, submit a complaint to your state attorney general, the Federal Trade Commission, and a nearby consumer protection agency.
The bottom line
A car service contract may not be suitable for everyone. It is important to consider your current coverage, budget, and future plans for the car. Keep in mind that not every service is included in the contract, and for small repairs, it may be cheaper to pay for them yourself.
To clarify, consider reviewing multiple providers for optional coverage. You have the freedom to choose a service contract outside of the one offered by the dealership or seller, and you may find better coverage or repair options elsewhere.