North Carolina Department of Justice

North Carolina Department of Justice

North Carolina Department of Justice
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Think twice about car service contracts

2/22/2011

Tempted to buy an extended service contract for your car? While these offers may seem like a way to save on car repair costs, most consumers find that service contracts rarely live up to their expectations.
 
Each year, my office hears from hundreds of consumers who are unsatisfied with extended car service contracts. In the past few months, we barred three companies from selling or pitching auto service contracts in North Carolina because of all the problems we heard about from consumers.
 
Consumers often complain that they were misled about what their car service contract actually covers. For example, a salesperson might tell you that it covers your car for 150,000 miles when it really only provides coverage for up to 75,000 miles. Consumers also tell us that companies frequently give them the run around when it’s time to pay for valid repairs by requiring extra paperwork or claiming the problem isn’t covered.  
 
Unlike warranties, which are included in the price of your vehicle and offered through the manufacturer, service contracts are sold separately for an extra charge. Service contracts can be sold by third parties or by the dealership where you buy your car and can cost anywhere from $50 to $3,500, depending on the length of the contract and what it covers.  In addition to the upfront cost, you’ll often have to pay a deductible for each visit to the mechanic or repair shop. 
 
To help avoid the headaches of promises broken and claims denied, consider the following tips before you buy an extended service contract:
 
  • Don’t fall for urgent calls or letters warning you that your car warranty is about to expire. Be sure to review your current warranty to see if it’s still active and don’t give in to pressure from salespeople.
 
  • Read the manufacturer’s warranty and the service contract carefully. If they cover many of the same parts for the same period of time, you probably don’t need the service contract.  
 
  • Read the entire contract before you sign or pay any money. Make sure that any verbal promises are put in writing. If the service contract doesn’t say that an item is covered, assume that it is not. 
 
  • Check out repair statistics and the average cost of repairs for your vehicle. Consumer magazines or websites such as Consumer Reports, J.D. Power and Associates and Edmunds can be good sources of information about how reliable certain automobiles may be and how often they need repairs.
 
  • Most extended service contracts have a deductible, meaning you’ll pay a fee for each repair. Be sure to ask if whether you are required to pay upfront for the repair and then wait to be reimbursed. 
 
  • Check out the company. Call my office toll free at 1-877-5-NO-SCAM or your local BBB to see if there are any complaints on file. You also can search online reviews in your favorite internet search engine. Just type in the name of the company with the word “reviews” to see what other consumers have to say about the company. If the company goes out of business or files for bankruptcy, there may be little you can do to get a refund or to get service for your car.