auto

When to cancel extended service contract

q_v2.gif I leased a Honda several months ago. At that time, I purchased a Platinum Protection Plan worth $2,200 that covered unlimited powertrain protection and also roadside assistance, which included tire repair and/or replacement. They said they would reduce the price by $400, but I never got that refund. A week later, I received a call from the dealer stating that they could get my monthly payment down from $520 a month to $500 a month. I went in and signed the new papers, but I was never told that what they were doing was eliminating the roadside assistance coverage for my car. Meanwhile, one of my tires is totally damaged and I need it replaced. They tell me that I do not have coverage for the tires. Since I never got that refund, does that nullify the second contract I signed?

a_v2.gifIt sounds like you're mixing topics here, so let's take things one at a time.

1. The extended service contract: Long story short, it sounds like you paid too much for an extended service contract that you probably didn't need. Lease customers seldom buy what's commonly called an extended warranty, or what the industry calls an "extended service contract."

That's because lease customers seldom keep their cars long enough for the manufacturer's original warranty to run out. The main reason to buy an extended service contract is to cover repairs after the manufacturer's warranty runs out.

It's also true that an extended service contract may cover wear-and-tear items that aren't covered by the manufacturer's warranty such as tires. The dealership should have provided you with a list of items that the extended service contract covers that are not covered by the manufacturer's warranty. For $2,200, it better be a pretty impressive list.

Incidentally, basic roadside assistance and tow-truck coverage is really inexpensive. Check with your local AAA chapter for a comparison.

An extended service contract is basically a form of insurance. A service provider comes up with a wholesale price to the dealer based on how often the service provider expects people to use it, just like insurance.

The dealer buys the contracts at a wholesale price and sells them to customers at a retail price. A 100-percent markup is not uncommon. That is, dealerships often charge twice what the contracts cost them.

Even by that standard, a service contract for $2,200 sounds awfully high. The good news is, it has cash value like insurance. If you decide to cancel it, the sooner you cancel it, the more money you will get back. However, you won't get the full amount back.

2. You didn't know what you were signing: To be fair to finance managers, people often don't listen closely when the finance manager tries to explain the financial details. Either they're so excited about buying a new car, or they don't understand the terms and they're afraid of asking a "dumb question."

Some dealerships even videotape the entire transaction to prove that people got the proper disclosures.

The situation sounds pretty complicated. If I have it right, you say they owe you a partial refund and tire coverage. The dealership argues you got the partial refund, but to get it, you agreed to cancel the tire coverage.

If you're really convinced you were misinformed, go over the finance manager's head and appeal to the dealership owner. At the very least, they're obliged to explain the ins and outs of the documents you signed until you're satisfied you understand them.

3. Replacing the tire: When you need a new tire, you need a new tire. Go ahead and replace it. Keep all your receipts and then decide if it's worth it to pursue the question of who's liable. It's best to assume the worst, and on paper, at least, it sounds like you're not covered. If it were me, I would cancel the entire service contract and get a refund from the service provider. Your refund will cover a lot of out-of-pocket expenses.

 

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