In my experience as an educated but still vulnerable consumer, no salesperson in the known civilized world salivates more conspicuously or exaggerates their product’s uses more shamelessly than the seller of an auto service contract. There is, of course, the occasional representative of the service contract who truly has your best interests at heart, like the great whale shark drifting benignly through the ocean, sifting tiny little animal life through harmless baleen, as opposed to the rest of the shark world, armed with angry teeth so evil they replace themselves immediately once one is lost.
Is it ever a good idea to say yes to that contract? My older sister swears by it, and claims she has gotten much more out of it than she ever put into it. The rest of us mere mortals have probably put more than $1,000 into a packet of paper we have never really understood (but we’ll never admit that out loud) and probably never had to use; and if we did, it was a hassle fraught with tricks and hoops through which to jump.
The FTC Wants You to Be an Informed Consumer
The FTC is a marvelous governmental resource that makes sure businesses function within the law and treat their customers fairly. They have many articles giving advice on how to get the best service and how to avoid being scammed. One of these articles is titled “Auto Service Contracts,” in which they explain the general terms of a contract, the difference between a service contract and an auto warranty, protection when buying a used car, and where to complain or get help resolving a dispute. The following information is drawn from that article.
A Service Contract Verses a Warranty
A service contract is an agreement that states that the auto dealer, auto manufacturer, or a separate entity, such as an insurance company, will pay for certain services and repairs on your car during a specific period of time. The price of this contract is in addition to the price of your car, and can usually be tacked onto your auto loan. A warranty is essentially the same thing, but comes with a new car and is included in the original sale price. When deciding whether or not to purchase an extra service contract, often referred to as an “extended warranty,” you should check to see if anything in the contract is already covered in the warranty, so you do not pay for something you already get.
Terms of the Contract
Not all service contracts are created equal, and while you may feel pressured to just sign the documents, you will want to make the auto dealer wait while you read it word for word and ask all your questions and clarify all uncertainties. Some things to look for in your contract are: (1) Do you have to pay a deductible per repair or (gasp!) per visit? Most maintenance-type repairs, like oil changes or break replacements, are not covered. Sometimes the things that are covered have tricky exclusions. (2) If a part covered by the contract is damaged by a part not covered by the contract, will that lead to your claim being denied? (3) Will coverage change as the value of your car depreciates in value or increases in mileage? (4) Does the contract only cover problems that occur in a specific geographic area? (5) Do you have to follow a strict maintenance schedule at specific service stations or else risk losing coverage? (6) What are the terms for canceling the contract before it expires, or can it be done at all?
Used Cars
The FTC requires a “Buyer’s Guide” sticker to be posted on a used car’s side window if it is being sold by a dealer. This sticker lets you know if the car is still under warranty or if it is being sold “as-is.” This means that if the car breaks down while you are exiting the dealership parking lot, you are the only one responsible. The auto service contract salesperson loves to tell horror stories about this type of thing. I have never ever bought a car, new or used, without being told about a customer who had such a tragedy befall them who then regretted not buying the extended warranty. Find out if your state has “lemon laws” – if they do, this means that no one can sell you a seriously defective car. That kind of immediate breakdown would likely be the responsibility of whoever sold it to you.
There is also what is called an “implied warranty,” which means that a seller only guarantees that a thing will do what it is supposed to do. In this case, it would mean that the car will actually run, and if it doesn’t, the dealer has to make it run before you take it home.
Additional Tips and Tricks
The FTC advises that “if you are told you must purchase an auto service contract to qualify for financing, contact the lender yourself to find out if this is true. Some consumers have had trouble canceling their contract after discovering the lender didn’t require one.”
If you buy a contract through a dealership and that contract will actually be handled by a third party (such as an insurance company), make sure the dealer sends you confirmation that the service contract and payment were indeed forwarded to that company. According to the FTC, some consumers have found that their payments were never sent and their contracts were never put into effect, leaving them without coverage.
If you would like to read the full FTC article about Auto Service Contracts, visit http://www.ftc.gov.
By Alisa Elizabeth King Terry