Everyone can recall right now, sitting in the finance office of a dealership being asked to purchase an “extended service contract” for the new or used car they are waiting in anticipation of driving away in. Some people automatically say no and others feel intimidated by the manager and just say yes to everything. At an average of $3000.00, this is a purchase people know little about, know less about how it works and even less about getting their money’s worth. Follow this simple guideline to making the right decision.
Warranties are in fact extended service contracts designed to either wrap or extend a factory warranty. They are an insurance policy just like any other insurance policy, designed to pay for a loss after you pay a deductible. Unfortunately, extended service contracts are significantly trickier to decode than your comprehensive and collision insurance policy.
1. Do I have to purchase the warranty when I purchase the car? Yes and No. If the car is new, you can buy the extended service contract prior to the expiration of the factory warranty. You will have to pay cash, though at that time or put it on your credit card. If you are getting a 0% or 1.9% special rate, then buy it when you buy the car. If it is a used car, the dealer cannot sell you the warranty after the date of sale on the used car, unless the car is still under the factory warranty. You will have to buy the warranty from another vendor and extended service contracts sold outside of dealerships can be very very tricky.
2. Can I cancel an extended service contract after I purchase it? Yes, but if the car is financed, the refund goes to the lender to decrease your balance and is not paid to you. Also, if you have used the warranty, then the amount of claim is deducted from the refund. You don’t want to cancel a warranty to only find out you get almost no refund and you lose the value of the “insurance” for nothing.
3. Can I transfer the warranty to my other car when I sell the car I am driving or can I transfer the warranty to the buyer of my car? It is not mandated by any law, it is decided by the insurance company and clearly states so in the policy. Ask, read, confirm. If it is say a warranty underwritten by Ford Motor Company, the warranty stays with the car. If it is written by an after market carrier, it would typically be only valid as long as the car is owned by you.
4. I purchased a warranty, my car broke down and the service contract company would not pay the claim, now what? Two types of extended service contract providers exist. Those that pay and those that don’t. Typically, those sold or underwritten by the cars manufacturer have a vested interest in keeping you happy, and are typically much more generous than those whose business is to pay the least so as to make the most profit.
5. The dealer said I have to purchase the extended service contract. Is this true? The dealer cannot require this, but in some cases a lender may. If the dealer says you have to buy the extended service agreement, ask to see it in writing from the bank. In 25 years, I have only had the bank say that to me twice about a customer.
Like anything about buying a car, get educated, read, and know what to ask before you spend $3000.00 on an extended service agreement.