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Service Contracts & Extended Warranties

Like a warranty, a service contract provides repair and/or maintenance for a specific period. But warranties are included in the price of a product, while service contracts cost extra and are sold separately. To decide if you need a service contract, consider whether:

• the service contract duplicates warranty coverage or offers protection that begins after the warranty runs out. Does the service contract extend beyond the time you expect to own the car? If so, is the service contract transferable or is a shorter contract available?
• the vehicle is likely to need repairs and their potential costs. You can determine the value of a service contract by figuring whether the cost of repairs is likely to exceed the price of the contract.
• the service contract covers all parts and systems. Check out all claims carefully. For example, "bumper to bumper" coverage may not mean what you think.
• a deductible is required and, if so, the amount and terms.
• the contract covers incidental expenses, such as towing and rental car charges while your car is being serviced.
• repairs and routine maintenance, such as oil changes, have to be done at the dealer.
• there's a cancellation and refund policy for the service contract and, whether there are cancellation fees.
• the dealer or company offering the service contract is reputable. Read the contract carefully to determine who is legally responsible for fulfilling the terms of the contract. Some dealers sell third-party service contracts.

The dealer must check the appropriate box on the Buyers Guide if a service contract is offered, except in states where service contracts are regulated by insurance laws. If the Guide doesn't include a service contract reference and you're interested in buying one, ask the salesperson for more information.

If you buy a service contract from the dealer within 90 days of buying a used vehicle, federal law prohibits the dealer from eliminating implied warranties on the systems covered in the contract. For example, if you buy a car "as is," the car normally is not covered by implied warranties. But if you buy a service contract covering the engine, you automatically get implied warranties on the engine. These may give you protection beyond the scope of the service contract. Make sure you get written confirmation that your service contract is in effect.

Check out these other used car topics:

• Buying from a dealer.
• Buying from a private seller.
• Paying for the car.
• What's the Warranty?
• Service Contracts.
• Car Ads: Reading Between the Lines
• Taking the Scare Out of Auto Repair

Next Steps.....

Trade Value  -   Financing  -  Leasing  -  Insurance  -  Warranties