Extended Warranties / Service Contracts

Most new vehicles come with at least a three-year/36,000-mile, bumper-to-bumper warranty and manufacturer roadside assistance. Typically, the need for major repairs arises in the fourth or fifth year of a vehicle’s life. Service contracts (or extended warranties) are optional programs. They provide for the repair of certain parts or problems in addition to the 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:

• Is the service contract providing what is already covered by the warranty?
• What repairs are covered? What repairs aren’t?
• When may coverage be denied? Is pre-approval for repairs required?
• Who performs the repairs? Can they be made somewhere other than 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.

Service Contracts May Be More Expensive Than the Repairs They Cover

Some consumer advocates caution against the purchase of service contracts. They may be more expensive than the repairs they cover. Make sure you understand how much a service contract will cost you and what it will cover. Programs offered by manufacturers tend to provide the most flexibility. Private companies and dealerships may only cover repairs they perform themselves.