What to know about auto service contracts and extended warranty scams (2024)

FAQs

What is the difference between a vehicle service contract and an extended warranty? ›

Extended warranties are an optional add-on product that covers defects or failures that are not covered by the manufacturers' warranty. Service contracts or prepaid maintenance plans are additional add-on products that cover regular maintenance or other service needs.

Verify: If you receive a piece of mail or call regarding your auto warranty, verify the legitimacy of the offer. Contact your vehicle manufacturer or dealership directly using a trusted phone number to inquire about your warranty status. Be Skeptical: Be cautious of high-pressure tactics and unsolicited offers.

If you're planning on driving a car until the wheels fall off, an extended warranty might make sense. Over time, repair costs can add up, especially toward the end of a vehicle's useful lifespan. On the other hand, if you're the type of person that changes cars every couple of years, the warranty might not be worth it.

Your right to cancel

On a used vehicle, you can cancel a service contract within 30 days without penalty. After 30 days, you can cancel and receive a partial refund. To cancel, write a letter to the dealer and the warranty company.

Cons of an extended warranty

Complex claims process: Depending on where you live, what provider you work with and the type of coverage you buy, filing a claim under your extended warranty can be complicated and time-consuming — and depending on the nature of the damage and repair work, it may not be covered.

Dealerships make significant money from aftermarket sales, which includes selling Guaranteed Asset Protection (GAP) insurance, car products and accessories, routine maintenance plans, and extended car warranties. Each warranty plan that a dealership sells can add up to $2,000 per purchase to its bottom line.

To make the best decision, it's important to consider what is covered by certain warranties (like bumper-to-bumper and powertrain warranties), how reliable your car is and whether you can afford to pay for major repairs out of pocket.

Why are extended warranties not recommended? ›

Extended warranties don't cover everything that can go wrong with a purchase, and they are expensive to boot. Your purchase likely comes with a manufacturer's warranty, and the retailer you buy it from may also stand behind it. The best credit cards also offer purchase protection.

To be worth the price charged for the repair or claimed via warranty, ROs must capture the 3C's: complaint (beginning), cause (middle), and correction (end).

An extended warranty price represents a percentage of the total product cost. As a general rule of thumb, you shouldn't spend more than 30% of the product cost on a product warranty.

An extended warranty or service contract on your vehicle pays the costs of some repairs, above what the manufacturer's warranty covers or after the manufacturer's warranty ends. Extended warranties and vehicle service contracts typically exclude routine maintenance such as oil changes and tire replacement.

If you want peace of mind and protection from high repair costs, an extended auto warranty could be a smart option to consider. Normally, you'll want to buy this when your manufacturer's warranty is close to expiring.

Whether you should buy an extended car warranty is a personal decision. While many drivers never use a warranty, others are glad to have the extra coverage. If you drive a reliable car and could afford to pay for unexpected repairs out-of-pocket, an extended car warranty might not be worth the cost to you.

Both factory and extended warranty plans typically cover vehicle parts that break down due to workmanship flaws or manufacturer defects. Every coverage plan is different, but warranties usually don't cover regular service costs for the following: Oil changes. Tire replacements and repairs.