Below are the best-kept secrets of the auto extended service contract business.
Myth: You can only buy an extended service contract from the dealer who sold you the vehicle.
Fact: You have many choices in buying an extended service contract. Most vehicle dealers are middlemen who make their highest commissions on the financing and aftermarket products like extended service contracts they sell. They are going to want you to purchase your extended service contract from them when you buy your vehicle, so it can be included with your financing. Depending on your rate and term finance charges can increase the overall extended service contract cost by hundreds of dollars. Shop around for the best coverage and value. Do not be pressured in to making a quick decision. You can always purchase an extended service contract after the purchase of the vehicle. Shop for quality and value just as you did on your vehicle?
Myth: All extended service contracts are basically the same; I should just buy the cheapest.
Fact: An extended service contract is just that – a contract! What is and is not covered and how it will be covered is outlined in the contract. A reputable extended service contract company will allow you to review the extended service contract before you buy.
There are many different types and levels of coverage. Without the knowledge of how an extended service contract actually works, price is the only thing on which one can base their decision. You should insist on reviewing the actual extended service contract before you purchase.
Buying an extended service contract is all about transferring your risk of costly repairs and having your claims paid. Low prices may look good up front but they are often coupled with low levels of service and many restrictive contract clauses which will lead to many out of pocket costs for you on each claim. Here are a few contract clauses you should look at carefully:
Exact language stating what is and is not covered
Seals & Gasket language
Overheating language
Wear & Tear language
Myth: If I buy the extended service contract before the manufacturer’s warranty expires, I will have double coverage on my vehicle.
Fact: The newer your vehicle, the lower the rates for extended coverage.
Extended service contract companies understand that you may have a warranty from the manufacturer. Their coverage is simply an extension of that, not double coverage. The manufacturer’s warranty has been factored into your price quote. The more factory warranty you have remaining, the lower the cost and greater the length of the warranty extension. In other words, you are paying for tomorrow’s coverage at today’s rates. In addition, benefits like roadside assistance are available to you during the manufacturer’s warranty period.
A common misconception is that by waiting to purchase extended coverage, you will get coverage for a longer time. Much like life insurance, costs rise as we age; the cost for a vehicle extended service contract will rise as the vehicle ages and accrues mileage. You will be offered the longest terms and the lowest rates for newer vehicles with lower mileage.
Myth: You must purchase an extended service contract in order to qualify for dealer financing.
Fact: You do not need to include an extended service contract or any other expensive dealer add-on to qualify for financing.
It does not make any sense that a person would be required to increase the amount they are financing by adding an extended service contract, in order to obtain financing. Financing is approved or denied based upon your credit, and nothing else.
Myth: A "Listed Component" extended service contract offers the same coverage as an "Exclusionary" style extended service contract.
Fact: An exclusionary extended service contract is the highest level of coverage you can receive. It is as close to the original manufacturers warranty as you can get. With these types of policies all mechanical and electrical components are covered. This provides much greater protection than a listed component service contract that covers specific listed components.
Some specific listed component extended service contracts will exclude repairs needed due to "wear and tear, overheating, seals and gasket related failures ect.
Before buying an extended service contract, you should carefully review what is covered and not covered to see what is excluded from coverage. It is a mistake to assume that any particular extended service contract will cover every repair your vehicle may need without first reviewing it.
Myth: As long as I have an extended service contract, I don’t need to worry about my vehicle.
Fact: All extended service contracts require that you properly maintain your vehicle and perform the manufacturer’s recommended maintenance.
Vehicles still need proper maintenance, as outlined in your vehicle’s owner’s manual. Be sure to keep accurate maintenance records and receipts. To neglect this responsibility to your vehicle may not only jeopardize your claims getting paid, but will also put your investment at risk.
Myth: My dealer does not accept third party extended service contracts for repairs.
Fact: It is very rare that an honest repair facility will refuse to accept an extended service contract that pays them via credit called upon completion of the repairs.
The marketing and sales of extended service contracts has moved beyond the traditional vehicle dealer channels. Dealers not only offer the manufacturer’s extended service contract, but are now offering third party extended service contracts as well. Most third party extended service contract companies pay the repair facility immediately over the telephone by credit card, so there should be no objections about accepting the extended service contract. In fact, an extended service contract from a third party will require the dealer do less paperwork and not wait for reimbursement. Don’t feel pressured in to having to take your vehicle back to your selling dealer. You have many choices to choose from including other dealers. Remember your selling dealer should be making your life easier not more difficult – you are the customer!
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