Is an auto service contract a good idea?

Pennsylvania residents looking to purchase new or used vehicles should be aware of potential issues related to automotive service contracts.

When shopping for a new vehicle, Pennsylvania residents know that they are likely to be presented with many upsell options by automobile dealers. These upsells may come in the form of add-ons like special floor mats, running boards or upgraded electronic and entertainment system. Another form of upsell common in the car sales industry is the extended vehicle service contract. But, is purchasing this contract really always in the best interest of the consumer?

Consumers should investigate before agreeing

Consumer Reports suggests that consumers never just blindly accept the option to purchase an automotive service contract. In fact, the consumer agency indicates that most people end up spending more money on the cost of these contracts than the money they ever save by having them.

It is important for auto purchasers not to believe that the term "comprehensive" really means that everything is covered, all of the time. There are virtually always exclusions in these contracts and these exclusions may have several fine details attached to them.

The Federal Trade Commission adds that consumers should not think that the term "service contract" is synonymous with "warranty." These are two very different things and the differences here should be clearly understood up front.

Questions to ask

Auto Trader provides consumers with some specific points to investigate before deciding whether or not to purchase an auto service contract.

When evaluating these contracts, it is important to know which company actually manages and administers the claims and contract ownership. A thorough review into the company's history is recommended and some information may be available via the Better Business Bureau.

Clauses discussing the exclusions should be read with care so that consumers know exactly what parts and what labor will eventually be paid for. When it comes to deductibles, people should ask if a deductible is assigned per visit or per item repaired as well as how much the deductible is.

Related to exclusions, people should ask a dealer if there are ways that the contract may be voided. For example, failure to perform regular service may result in the contract being nullified. Details about the claims process should be clarified as well so that consumers know what to expect if and when they need to use the contract.

One warning flag for consumers is the suggestion that a person will not be able to receive financing if the contract is not purchased. Such information should be verified with the lender as this is often not true.

Protecting your rights

Texans who are concerned that their rights may not have been protected should always contact an attorney. Automobile service contracts are legally binding documents but that does not mean that they cannot be fraudulent. Getting help when concerns surface with these agreements is important in protecting consumer rights.