Service Contracts and Extended Warranties

Service contracts, or warranty extensions, continue to be aggressively marketed to car buyers. Careful shopping is the only way for a consumer to get the contract that is right for them.

Similar programs are offered by automakers, car dealers, and insurance companies. Subtle differences between plans may make one more suitable for a person's needs than any of the others. It is important to be able to review the actual policy that explains coverage and exclusions in detail.

The "basic warranty" is the bumper-to-bumper protection for at least the first year or 12,000 miles. However, most car makers do better than that, and offer a three year or 36,000-mile basic warranty. Be sure to read the warranty carefully for hidden charges or deductibles.

A "powertrain warranty" extends beyond the basic warranty, and covers the internal parts of your car's engine, transmission and driveline.

Think of a "corrosion warranty" as "rust-through" protection, because a visible hole through a body panel usually needs to be present before a warranty claim can be made.

While under warranty, you are required to follow the recommended maintenance of your vehicle to keep the warranty in force. You should also keep all your service records in case of a dispute.

Many people seem to think that when their car is no longer under warranty they don't need to follow the suggested maintenance intervals any longer. Do yourself a favor and continue following the maintenance schedule as before. You'll find that this preventive maintenance will more than pay for itself later on down the road, whether it be in resale value or in avoided repairs.

Sales brochures often are written in a one-sided manner that obscures the shortcomings of a particular program. Buyers should know exactly what parts or systems on the car are covered. Many contracts cover only the parts that make the car move down the road. Owners of luxury cars equipped with many electronic gadgets and power accessories that sometimes malfunction need to shop for contracts that cover these components.

Some contracts put restrictions on trailer-towing. Be wary of exclusions involving things that characterize your driving. On questionable interpretations of the policy, it is best to try to get some statement in writing from the parent company.

Verbal statements from a salesmen seldom are binding. Car owners need to know the amount of driving they will do during the time of coverage. If a car is driven 8,000 miles per year, the time limit of a 36,000-mile/three year contract will expire long before its mileage limit.

Does the service contract duplicate the coverage of the manufacturer's new-car warranty? Coverage under new car warranties is not necessarily standard at 12 months/12,000 miles -- many new cars are covered for 60 months/50,000 miles.

How much longer does the service contract protect the car owner after the original warranty expires? Service contracts seldom offer coverage as comprehensive as the original new-car warranty. Claim settlement procedures also vary.

Must the car owner pay for the repairs and then be reimbursed? Is there a deductible amount on each repair to be paid by the customer? Who may repair the car? Only the selling dealer? Any dealer? Any shop, dealer or independent? Is a pre-repair inspection by the warranty company's representative necessary? It may even be smart to check the financial stability of the company carrying the service contract. Your bank can assist you here. If a warranty contract company goes out of business, your contract may be worthless.

When maintenance recommendations are followed, major problems are unlikely to occur until the car hits the 60,000 to 70,000 mile mark. Yet, if you are buying a car with new engine design or transmission design, a service contract might be a good idea if unexpected bugs still exist in the new design. The extended service contracts are insurance policies.

A driver's individual circumstances determine whether they can stand to risk having to pay for a major repair out of their own pocket, or whether they prefers to purchase the peace of mind that the right contract provides.

Service contracts are not for everyone, but the wise buyer understands the protection they are purchasing beforehand and buys only the contract that fits their need and budget.