Physical Address

304 North Cardinal St.
Dorchester Center, MA 02124

Are Extended Car Warranties Worth It?

According to Experian data, the usual loan on a new car lasts six years, which is longer than the standard manufacturer’s warranty. Many people also keep their cars for far longer than that. Because owners are responsible for paying for all repairs after the warranty expires, purchasing an extended warranty has become a common practice. According to the National Automobile Dealers Association, almost half of customers who purchase a new or used car from a franchised dealer choose an extended warranty.

Extended service contracts are the official name for what are usually referred to as extended warranties. They don’t extend the manufacturer’s warranty, so they might not have the same benefits or limits or cover the same items. Instead, they are insurance policies that guarantee to fix or replace certain items if they break, and they always have exclusions about what is covered (just like manufacturer warranties do).

Another significant distinction is that whilst a warranty is included in the price of a car, an extended service contract is an additional cost.

People purchase an extended service contract primarily to protect themselves from expensive repairs after the manufacturer’s warranty expires, like a new transmission or an expensive engine rebuild.

The expense of a service contract, however, is the largest concern for many, and there is no easy solution. Depending on the type of car—new or used—the age and mileage of the vehicle, the length of the contract, and what it covers, it may cost less than $1,500 or more than $3,000 in total. Some only give coverage for the main powertrain components, while others offer bumper-to-bumper protection.

A service contract for a car from a manufacturer with a solid reputation for quality will be less expensive than one for a manufacturer that consistently scores poorly in reliability tests. This is so that the business supporting the service contract can budget for less repairs.

Do You Need an Extended Service Contract?

Although purchasing a service contract when you buy a car, whether new or old, can offer peace of mind and frequently seems like a wise choice, there are various reasons not to, especially if the car is protected by a manufacturer’s guarantee.

You might conclude after careful thought that a service contract isn’t worth the money. This is why:

  • Repairs covered by the manufacturer’s warranty are not covered by a service contract. The powertrain warranty may additionally cover significant engine and gearbox components for five years/60,000 miles (or longer). In such case, you might never use a five-year service contract, so you’d be paying for something you could have had for free.
  • Many customers who employ service contracts discover the hard way that their contracts are more expensive than the benefits they receive. Since extensive repairs are rarely necessary for vehicles to live more than 10 years, people may never experience the mechanical catastrophe they anticipated. For instance, if someone buys $2,000 for a contract, the only repairs that are covered for the duration of the contract total $1,350. Instead of placing money in a piggy bank, they would have been better off.
  • Additionally, all service agreements include exclusions, so the repairs you require, such those for an overheated engine, could not be covered. Another possibility is this: An oil seal leak damages the inside of the engine. The oil seal is not covered, but the interior damage is, and the contract administrator may deny a claim if the damage was caused by an uninsured part. Additionally, if the owner of the vehicle cannot provide evidence of routine maintenance, claims may be refused under some contracts (the same is true for warranties).

Choose Carefully If You Want a Service Contract

Here are a few things to think about if you decide a service contract is the correct choice for you:

  • When taking receipt of a new or used car, you are not required to purchase a service contract. If the car is still covered by the warranty, you have plenty of time to look into additional servicing agreements.
  • You can choose. You can compare pricing for both manufacturer-backed contracts sold by other dealerships and the many independent contract suppliers who advertise online.
  • Many dealers also offer plans from independent companies, while some only offer contracts supported by the automaker or a related business. You might hear from independent service contract providers after you receive a vehicle if they looked through public records to discover that you recently purchased a vehicle.

  • Instead of the manufacturer, an independent provider’s contract may be recommended by a dealer if it offers a bigger profit margin for the dealer rather than better coverage.
  • Customers praise the excellent service that many small businesses offer, however several independent service providers have closed their doors. Even though it doesn’t happen often, you should look at the company’s standing and financial stability.
  • When you purchase a vehicle from a dealership, you could be persuaded to roll the cost of an extended service contract into the loan. Although it’s convenient, you’ll also have to pay interest on it.

Prior to buying a service contract, you Should Ask These Important Questions

  • Each appointment has a deductible, right? Each time, you might be required to pay $100 or $150 out of pocket. If you sell the car to a private party, may the service contract be transferred to the new owner? (If you sell to a dealer, they won’t be transferable.)
  • Where do you go to get repairs done? Manufacturer-backed contracts frequently demand that you visit a dealer, and they rarely make an exception. Other contracts can allow you to select the repair facility or include limitations on where you can take your car.
  • Do you have to pay the bill and then submit a claim to be compensated for covered repairs, or does the service contract pay the repair shop? Can a claim be turned down after you’ve paid for a repair?
  • Before deciding to buy, can you read the contract you’ll be required to sign? The limitations and exclusions are spelled out in the fine print there, not in the glossy brochure or the internet advertisements, where everyone is smiling broadly in the pictures.
  • What are the conditions and the exclusions? To find out what is excluded and any other restrictions, you must again consult the original contract. If a salesperson tells you, “Oh, that covers everything,” don’t believe them. It won’t, so before you buy, check out what isn’t covered.

For more information you can click: 

How to Sell Your Car

Leave a Reply

Your email address will not be published.