If you’re wondering if it’s worth spending extra money on an extended warranty, the short answer is yes. But it depends on the company and coverage you select.
If you can recall your last vehicle purchase at the dealership, you were probably excited to find what you were looking for, to get somewhat close to the price you wanted to pay, then more than anything you most likely wanted to get the heck out of there before they begin selling you more stuff.
The dealership is a great place and many of their products are pretty good as long as you know what you’re paying for. Usually, the sales people have no idea what they are selling so it’s up to us, the consumer, to take some time to read the documentation before we add another item to the bill.
If they can provide you with proper documentation such as a brochure, pamphlet, or sample contract, you’ll often see different options which provide more coverage.
Now, when it comes to an extended warranty for your car, truck, RV, or motorcycle, you must take the time to consider all of your options and not feel rushed to make a decision.
How to choose the right service contract:
Warranty duration
First you want to consider if the vehicle you are about to purchase has a manufacturer’s warranty in place then you need to know what the duration is so you can make sure there’s coverage for as long as you plan to own the vehicle.
Note: If you are looking at a used vehicle, it may have an active extended warranty in place that the dealership is unaware of. This can occur when you are at a non-OEM dealership, e.g., buying an Acura at a Toyota dealership. If that is the case, you can call the manufacturer’s customer service phone number and they can inquire for you.
Keep in mind, if the vehicle has an extended warranty that is aftermarket you’ll have to search online for companies and call each one to verify if they have a record of the vin (Vehicle Identification Number) on file. It might be a slight hassle but it’s worth the effort.
Second, you’ll want to consider the duration of the extended warranty they want to sell you. Sometimes there’s a slight overlap in coverage but don’t let that discourage you from the purchase.
Keep in mind that during the sale of the vehicle and service contract (extended warranty), the finance department is able to provide you with the product at a substantially lower price than if you wanted to purchase it separately or at a later date.
Warranty duration recommendation
My advice, is to select the longest duration possible because you may end up owning the vehicle longer than you originally planned. And the good news is, if you sell the vehicle while the extended warranty is still active it is normally transferable which can provide a higher re-sale price of the vehicle.
Additionally, you may also be able to cancel the contract and receive a prorated portion of the cost sent to you or the lien holder. Make sure to refer to the contract and review any state consumer laws and benefits that apply to you.
Level of coverage
Third, you’ll want to select the highest coverage level. Normally there will be multiple levels of coverage available at various price points but don’t let the prices distract you. You always have to consider what you can afford and ultimately that is something you should have in mind way before you arrive to the dealership.
But I will say this, if you are concerned with the possibility of an unexpected out-of-pocket repair in the future then it’s cheaper to pay for higher coverage now than pay the shop for a repair or multiple repairs that are not covered by the contract.
Product cost
Fourth, you can and should be able to negotiate the price of the contract. If the contract is from a third-party you should be able to haggle a bit and not accept the first offer. If the finance department is capable of making such concessions make sure they are not modifying the contract’s duration or level of coverage.
Once you make a deal, don’t accept a random brochure or irrelevant piece of paper. Be certain that you leave there with a document that states the price of the contract, duration, and level of coverage and a copy of “every page” of the contract. They can print all of that for you. Make sure you don’t leave there without that… Trust me!
Peace of mind and the ability to cancel
Fifth, you can always cancel and get 100% of your money back! If you purchase a service contract, and decide you don’t want it, you normally have thirty days or less to obtain a 100% refund. Take a look at the contract and your state consumer laws and benefits which should be located on the same document (the contract).
If you financed the vehicle, the reimbursement of the contract will be sent to the lienholder and the total amount of your loan will be reduced.
What to look for in a service contract
You’ll want to look at rental coverage first. Check how many days are available for covered repairs and look at the maximum allowance per day. And keep in mind, you may actually be able to utilize these rental benefits while your vehicle is having a covered repair through the manufacturer.
If possible, increase the allowance per day for a rental. Prices keep going up so plan for the future.
Next, take a look at the deductible. It is possible you may not have one depending on the contract agreement, or there is no deductible “only” if you return to the same dealership for repairs when needed. If there is a deductible for a covered repair, usually there is only one, so you’ll only have to pay it once per visit not per repair.
The fine print
You’ll then want to take a look at “what’s covered” so you have an idea of what you paid for. Extended warranties, also known as “service contracts” or “extended service contracts” are not designed to be the same as the original warranty that came with your vehicle when it was brand new.
For example, it will not cover faded exterior paint or worn leather seats. The contract is designed to keep your vehicle operational as the original manufacture intended. Meaning there’s no coverage for appearance issues, only for operational issues such as electrical and mechanical part failures.
Next, you’ll want to read: “what’s not covered”. This will help guide your understanding of the contract, its benefits, and what it’s designed to do. Once you read through this, you will have a better understanding of your rights and obligations.
You may also learn about excluded items that the sales person told you are “covered” when they’re actually “not covered”. But try not to get upset if that happens, this is what it means to be an educated consumer.
Lastly, you want to learn where you can bring your vehicle. Unless there is a special circumstance, the best place to “always” bring your vehicle is the dealership. If the contract you’re looking at does not allow you to take it to a dealership, then consider a different contract. Trust me!
Other benefits
In addition to rental coverage, many service contracts include roadside assistance. Even if you currently have roadside assistance through your vehicle insurance, it’s great to have extra coverage because you can take advantage of both if you experience a breakdown.
The other benefit is referred to as travel protection. Normally this applies when you’re on a trip, 250+ miles away from your home, and a mechanical breakdown occurs. You will be provided with a daily allowance for food and lodging for a set number of covered days. Refer to those benefits in the contract to get the exact details.
And always remember… If you have a contract and you use this benefit, make sure to save all of your receipts, keep them in good condition and make sure they’re properly organized!
Conclusion
Extended service contracts are a great way to save money on repairs and keep your vehicle running like new. When you’re offered a service contract, take some time to learn who the administrator is and if they have a good reputation.
You’ll find that there are complaints about every company out there but not all of the companies are bad. There are many great companies out there that operate with integrity. They will do exactly what the contract says. So read up and remain an educated consumer.
