Auto Service Contracts

Should you pay extra for an "extended warranty"?

Dealers may try to sell you an auto service contract or "extended warranty" when you buy a new or used car. A warranty comes with a new car and is included in the original price of the vehicle. A service contract is sold separately and is a promise to pay for certain repairs or services. Usually a service contract is a high-profit add-on, costing hundreds to more than $1,000.

The service contract may duplicate any warranty coverage you get from the manufacturer or dealer. Does the dealer, the manufacturer, or an independent company back the service contract? What happens to your coverage if the dealer or administrator goes out of business?

Common repairs for parts like brakes and clutches generally are not included in service contracts. Watch out for exclusions that deny coverage for any reason and other terms that could cost extra when repairs are made.

How are claims handled? Can you choose among several service dealers or repair centers or do you have to return to one dealer? Is your car covered if it breaks down on a trip or if you move out of town? Do you need prior authorization for repair work?

Failure to keep up manufacturer's recommendations for routine maintenance can void the service contract. The contract may prohibit you from taking your car to an independent station for routine maintenance or performing the work yourself.