What is an automobile maintenance contract?
While you are shopping for a car, your salesperson may offer you something called an auto service contract. Auto maintenance contracts are designed to protect you against unexpected or costly repairs. But you may not need it if the car is already covered by a manufacturer’s warranty or if you have the same protections through an insurance policy or credit card. Before spending extra money on an auto service contract, do your research to see what it covers and if it makes sense to buy one.
What is an automobile maintenance contract?
A service contract, also known as an extended warranty, is a contract that covers certain problems or repairs to the vehicle after the dealer or manufacturer’s warranty expires.
You might find one offered by an automaker, car dealership, or warranty administrator. The service provider may impose a time limit within which you can purchase the service contract – until the end of the first year of ownership, for example. If your car needs repairs and is covered by the contract, you will file a claim with the service contract provider. He will send the payment directly to the repair shop.
What does a service contract cover?
Service contracts cover parts that may fail during the warranty period. For example, the contract may cover repairs to major vehicle components, such as the engine, transmission, and air conditioning, as well as roadside assistance and rental car reimbursement.
Coverage varies by provider and contract, so read the policy carefully before signing up. They usually come with a long list of exclusions, such as routine maintenance, wear and tear, theft, and vandalism. If a service is not listed, assume that it is not covered by the policy.
Service contract vs warranty
Before you buy an auto service contract, compare it to your car guarantee to see when coverage applies and if they overlap.
- Guarantees automatically come with new vehicles and cover repairs and faults for a specific number of kilometers or a certain period of time. A new car may be under warranty for three years or 30,000 miles, for example. If a service contract is offered to you by a third party, it will not be an extension of the exact coverage and terms stated in the original manufacturer’s warranty.
- Automotive maintenance contracts usually after the manufacturer’s warranty expires. These always cost extra, while warranties are built into the purchase price of the car.
You might even have similar coverage through some of your other financial products. For example, auto insurance can cover car rental costs and roadside assistance, while your credit card can cover trip interruptions. If you buy an auto service contract that offers similar benefits, make sure you don’t duplicate coverage and check how much the service contract will pay for a claim.
How to get the most out of your service contract
If you decide to purchase an auto service contract, you may be able to negotiate the price of the car or the contract. This strategy works best when you have multiple offers on hand, so do your research before heading to the dealership.
Get some quotes for auto service contracts and, when you compare the offers, take a look at these features:
- Check the cost of the policy. The cost depends on the make, model, condition, coverage, and contract length of the car. You’ll typically pay an upfront fee to purchase the policy – ranging from a few hundred dollars to over $ 1,000 – and potentially a deductible per visit or per repair.
- Ask what’s included. You will need to understand what is included and excluded in your policy and if that may change. For example, if an uncovered part damages a covered part, the service contract provider may deny coverage.
- Consider how long you will have the car. If the service contract lasts longer than you plan to keep your car, ask if you can transfer the contract and if fees apply.
- Learn about the process. Find out which companies can provide services and how you are going to submit a claim. The service contract can be managed by an “administrator”, who authorizes the payment of claims and distributes the money.
- Find out who takes out the auto maintenance contract. You can check the reviews online for a model of complaints against the company, the Consumer Financial Protection Bureau’s. complaints database and the Better Business Bureau. If an insurance company purchases the policy, you can check the agency’s creditworthiness.
Once you’ve signed up for the policy, get written confirmation that the dealership has sent payment to the appropriate administrator. When using the car, keep records and receipts for repair and maintenance of the car. The service contract usually does not cover pre-existing conditions, and records can help show that you provided preventative care.
If you have a problem with the auto service contract, try to resolve the dispute with the supplier. If that doesn’t work, file a complaint with your state’s attorney general, the Federal Trade Commission, and a local consumer protection agency.