Vehicle Service Contracts: Friend or Foe?


Aaahh…..vehicle shopping again…..You looked at a new vehicle and have decided to save some money and buy used.  You figure (correctly) a used vehicle will save you money on the immediate depreciation in value you would experience if you bought used.  So to protect your investment you have decided that you absolutely need that “extended warranty” the dealer offers on it’s used vehicle.   Is this also a good choice?  Let’s see..

First, the dealer is most likely NOT selling you any warranty.  The dealer is probably selling you a third-party vehicle service contract—big difference from a warranty

Second, the vehicle service contract may be far less than complete coverage.  Many companies advertise that you will save thousands in repairs and can rest easy if anything goes wrong with your vehicle.  Is this really true?  Often the vehicle service contracts have so many exclusions, limitations, terms, conditions, stipulations, and requirements that they taketh away far more than they giveth. 

Third, some consumers purchase these vehicle service contracts and believe mistakenly—-often based on the dealer’s own statements—that the dealer is backing the contract and will be responsible for fixing and/or paying for future vehicle problems. Dealers typically work with third-party vendors such as AutoGuard, WarrantyDirect, and others and “broker” or facilitate the contracts as part of the used vehicle purchase.   When read closely the contract states the dealer is only selling the contract and the contract is between the consumer and the third-party vendor.  Commissions are paid to the dealer and the consumer is then left to figure out who is responsible for what if the vehicle has problems. 

Fourth, the cost of these contracts may mean the savings is minimal.  Between having to pay for uncovered repairs and the aggravation in learning what repairs are not covered you may be upside down pretty quickly.  Click here for an excellent article regarding the gamble one takes when purchasing a vehicle service contract.

So what does one do? 

I suggest you do your research on which vehicles are typically reliable used.  Hondas and Toyotas are often good choices but for far more authoritative information on the topic you should consult Consumer Reports magazine or ConsumerReports.org.  Each April the Consumer Reports magazine provides detailed information about the relative reliability of virtually every make and model of vehicle.  To read the April issue for free visit the reference section of your local public library where you will also find other magazines (ex:  Car and Driver, Auto World) to learn which manufacturers’ vehicles are more likely to stand the test of time and provide reliable service.

Once you get seriously interested in a particular vehicle you should run a CarFax or Autocheck report.  Do not rely on the report provided to you by the dealer.  I have represented consumers who have been given incomplete or altered vehicle reports. 

Seriously consider hiring an independent mechanic to inspect the vehicle and provide you with a written report of problems and the vehicle’s relative condition.  Just like having a home inspection report done before deciding whether to buy a home and for how much, the mechanic’s report can provide you with awareness and leverage for your purchase.

If you must buy a vehicle service contract contact your bank or financial institution or your vehicle insurance company.   Or contact the vehicle manufacturer and see if they have a true extended warranty or vehicle service contract.  Avoid third-party vehicle service contracts.  And be sure you know whether the dealer is providing the warranty…you should get a Buyer’s Guide sticker for your vehicle and “As Is – No Warranty” should be checked if the dealer is not providing the warranty.

And get a sample copy of your contract before you decide to make a purchase.  Read the contract with certain questions and key factors in mind.  If the contract is not clear contact the dealer or vehicle service company–whichever is actually backing the warranty—and ask further questions.  Determine if the coverage you would get is worth the money you will spend.  You may determine that you are better off not purchasing any vehicle service contract and just saving your money.  Being “self-insured”—deciding to take the risk and just pay for repairs out of your pocket if they become available— for future repairs may be a better alternative and use of your money.

In the end, be sure to make a well-informed decision regarding protection for your used vehicle.  Used vehicles can be great finds and you want to enjoy the miles and savings for miles and miles to come.

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    Trackbacks

    1. Warranty Pay or Wallet (Purse) Pay for Vehicle Problems? « Law and Life Blog
    2. Car Law A to Z: E for “Extended Warranty” | Law and Life Blog

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