Evaluating a Service Contract

By Mary M. Alward

If you plan on purchasing a service contract, also known as an extended warranty, for a new vehicle, there a few specific things you need to look for. These tips and tricks will assist you in choosing a service contract and help you avoid being scammed. Always use extreme caution when purchasing any service contract.

• What company is providing the service contract? Is it an automotive manufacturer? What is their customer service policy? Is the manufacturer one of the big, well known companies? If not, use caution.
  
  
• When does the service contract begin? Be sure it doesn't overlap with the manufacturer's warranty. The only way overlapping is beneficial is if it covers repairs that are not covered by the manufacturer's warranty. This can save you a lot of money.
  
  
• What years does the service contract cover? How long does it run after the manufacturer's warranty expires? Remember, at the end of the manufacturer's warranty, the service contract will be your only protection.
  
  
• Ask to see a copy of the service contract before you buy it, as these are not normally refundable. If you can't view a copy, run the other way, very fast.
  
  
• Check to see exactly what repairs and services are covered. Is it blanket coverage? Blanket coverage would mean everything between the front and back bumpers, including normal wear and all mechanical problems. Maybe the service contract only covers certain parts or systems; or only mechanical failures and no wear. One specific thing to look for here is if the contract covers damage caused if the vehicle overheats. These damages can be extensive and expensive.
  
  
• Is there a deductible clause in the service contract? If so, how much is it? Is the deductible paid only once annually, per visit, or per repair? Be sure to read the fine print several times on this clause.
  
  
• Does the service contract specify who repairs the vehicle? If this is the situation be sure the maintenance provider has shops all over the country. Otherwise, you may have to have your vehicle towed hundreds of miles to the repair shop at your own cost. Good contracts allow vehicles to be repaired by any ASE certified mechanic.
  
  
• Who pays the towing charges if you are far away from the service provider?
  
  
• What are the particulars for submitting a claim? Do you have to obtain permission from the service contract's administration department before repairs can be done? If that's the case, is there a 24 hour, toll free telephone number to call? How quickly can permission be granted?
  
  
• Does the service contract company have insurance that will protect you if the company should close or file for bankruptcy?
  
  
• How are repair disputes handled and how does the company handle repairs that are not done properly?
  
  
• If you decide to sell your vehicle before the service contract ends, is it transferable to the new owner?
  
  
• How does the service contractor rate with the Better Business Bureau or the equivalent in your area? Also check with other consumer protection agencies.

Be sure to use these tips to assure that you are getting the best service contract provider. If in doubt of any of the terms and services, pass on the contract. These are usually very expensive and many times the terms and conditions make them almost useless.

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