What you need to know about an auto service contract

If you are shopping for a new or used car, you may be encouraged to buy an auto service contract.


Auto service contracts have become increasingly popular as a way to provide consumers a means to deal with unforeseen vehicle repair problems. Before signing on the dotted line, the Better Business Bureau urges consumers to be sure they understand the terms of the contract and know who is responsible for providing the coverage.

According to the Federal Trade Commission, an auto service contract is a promise to perform (or pay for) certain repairs or service. Sometimes called an “extended warranty,” a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the original price. Before deciding whether to buy an auto services contract, ask the following questions:

• Who backs the service contract? It may be the manufacturer, dealer or an independent company. Many service contracts are handled by independent companies called administrators. Administrators act as claims adjusters, authorizing the payment of claims to any dealers under the contract.

• What’s the cost of the auto service contract? The cost of the service contract can range from several hundred dollars to more than $2,000. In addition, you may need to pay a deductible each time your car is serviced or repaired.

• What is covered and not covered? Few auto service contracts cover all repairs. Watch out for absolute exclusions that deny coverage for any reasons.

• How are claims handled? When your car needs to be repaired or serviced, some service contracts permit you to choose among several service dealers or authorized repair centers. Find out if you will need prior authorization from the contract provider for any repair work or towing services.

• What are your responsibilities? Under the contract, you may have to follow all the manufacturer’s recommendations for routine maintenance, such as oil and spark plug changes. Failure to do so could void the contract. To prove you have maintained the car properly, keep detailed records, including receipts. Find out if the contract prohibits you from taking the car to an independent station for routine maintenance or performing the work yourself. • What is the length of the service contract? If the service contract lasts longer than you expect to own the car, find out if it can be transferred when you sell the car, whether there’s a fee, or if a shorter contract is available. Consumers should check with the BBB for a reliability report on the business offering the contract.

Do not sign a contract with blank spaces that could be altered or changed.

Finally, once the contract is signed, keep a copy of it for your records.





Wed, 11/22/2017 - 18:38

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