Auto Service Contracts
When buying a new or used car from a dealership, you can often be hit by the sales person with “extras” that they’d like you to purchase. The sales person earns extra commissions from these “extras” and will often try to hard sell you on them.
One “extra” in particular that you really ought to ask yourself if you really need is the “Auto Service Contract,” sometimes referred to as an “Extended Warranty.” We’d all like to protect ourselves from unexpected or unforeseen costly repairs that might not be covered by the manufacturer warranty, but there is a cost to this - and sometimes it just might not be worth the risk.
When offered an Auto Service Contract or Extended Warranty, you should examine the offer and ask some questions:
1. What are the terms and conditions?
Every agency or company that provides auto service contracts have their own terms and conditions and it is important for you to know exactly what those conditions are. You need to know what is included and what is not included.
2. Are there duplications?
Every new car comes with a manufacturer warranty - usually a minimum of one year or 12,000 miles whichever comes first. Find out what the manufacturer covers and compare to the auto service contract offer. Will you be paying for something that is already covered in the manufacturer warranty?
3. Who provides service?
The purchaser should find out who provides the service should something go wrong. Will it be the dealership where the vehicle is purchased? What happens if the owner is traveling and service is required far from home?
4. Who backs the contract?
Many extended warranties or auto service contracts are administered by independent companies. If the administrator goes out of business, will the dealership honour the agreement they’ve just sold you? In some situations, it is required that the dealership honour the agreement if the administrator goes out of business; likewise, if the dealership goes out of business, the administrator must honour the agreement and find another service provider for you. Get references for both the dealership and the administrator of the auto service contract and check up on their reputations.
5. What are the actual costs?
The price of purchasing an auto service contract can vary depending on a variety of criteria including the make, model and year of the vehicle you are purchasing. There will be the intial price of the contract, but then will there by any other costs to you? Often, you may have to pay a deductible on each repair that is covered by the auto service contract. Find out what the repair would cost you without the auto service agreement, then estimate how much you will actually save. Often, people purchase extended warranties and service contracts based on worse case scenarios with the “fear factor” built in.
You could end up saving yourself money by foregoing the contract, putting the amount you would have paid for the contract into a bank account allowing it to accrue interest, and then using it if necessary to “self insure” your own repairs.
Tags: auto service, Buying a Used Car, extended warranty, new car, service contract