Here are some key questions to ask when studying an extended service contract in detail.
How long does it last? What’s the time limit on your contract? And how long will it last beyond your car’s original warranty?
What’s the mileage limit? Many extended service contracts end when a car reaches 100,000 miles.
What’s covered? What repairs are covered in an extended service contract? What repairs are excluded? Does the warranty cover wear-and-tear in addition to mechanical failure? Some parts need to be replaced because they break. Other parts need to be replaced because of excess wear. Are both of these situations covered in your warranty?
What’s the deductible? A deductible is the out-of-pocket amount a customer must pay at the time of a covered repair. Deductibles range from $50 to $200 or more. Is the deductible charged per repair or per visit? This can make a big difference. Let’s say you have a $100 deductible paid per repair. If your car needs three repairs in a single visit, you’d have to shell out $300. With $100 deductible per visit, you pay 100 bucks no matter how many things they find to repair in a single visit.
Who does the repairs? A manufacturer-backed extended warranty is good at dealerships around the country, while a dealer-backed warranty may be limited to a single dealership. With an aftermarket warranty you may be able to pick your mechanic, but how difficult will it be to get repairs approved?
Who pays the bill? Will you pay the repair bill and be reimbursed by the company later? If the company pays upfront, what kind of authorization is required? How long will you have to wait to find out if a repair is covered by your contract?
What are the maintenance requirements? What types of routine maintenance on the car must you pay for on your own? Be sure to keep records and receipts from all service work. With a manufacturer-backed extended warranty, all maintenance work must be performed at dealerships.”Make sure you perform regular scheduled maintenance at a dealership,” Reed says. “If you don’t it can invalidate the extended warranty.”
Can you cancel? Some extended service contracts charge a cancellation fee and some cannot be canceled. Other contracts can be canceled free of charge during an introductory period. For example, GM offers a 60-day “free look” period during which the contract may be canceled and the customer given a full refund, as long as no claim has been filed.
How sound is the company backing the contract?Check the rating of the company with A.M. Best or Standard & Poor’s. You might also want to check with the Better Business Bureau to see if any complaints have been filed against the company.