All vehicles come from the factory with a warranty that is provided by the manufacturer. These factory warranties range in coverage from three years to ten years and cover anything from powertrain to full coverage.
Vehicle Service Contract
When the warranty provided by the manufacturer runs out, your vehicle is no longer protected from expensive repairs. The best time to purchase a service contract is shortly before your full coverage (or bumper to bumper) warranty expires. At that time you can choose to continue your coverage by extending the warranty with a vehicle service contract. A warranty is provided free of charge by the manufacturer. A warranty can never be sold, whereas a service contract may be sold at a dealership, in the finance office of a bank or credit union, on through a third party online.
Powertrain: A powertrain service contract covers the engine and transmission components of your vehicle. This is the most basic coverage and will be the longest portion of your factory warranty. Some vehicles come with a factory powertrain warranty of up to ten years. But you may want to cover some of the other components when your bumper to bumper warranty expires (usually after three years or 36,000 miles).
Component: A named component plan provides additional coverage beyond the powertrain service contract. These plans vary greatly by administrator, so read the benefit section of the contract carefully. They will list the additional vehicle components that are covered. These contracts will provide you with additional coverage when the bumper to bumper portion of your factory warranty expires.
Bumper to Bumper: “Bumper to Bumper” or “Exclusionary” plans cover everything on your vehicle except those components specifically excluded. Things excluded typically include maintenance items.
Terms of the Contract
Term of coverage The term of coverage is the length of time your vehicle is protected. This is generally stated in terms of months and mileage (ex: 36 months/36,000 miles). The term is whichever you reach first, the mileage or months.
If you are purchasing a “new” vehicle service contract, this term begins with mile one and day one. (Example: You purchase a 72/72,000 new vehicle service contract – the term runs out at the first of either 72 months or 72,000 miles on the odometer) You can purchase a “new” vehicle service contract on a vehicle as long as the factory warranty has not expired. Some administrators will offer “new” coverage up to 50,000 miles on the odometer at issue.
If you purchase a used vehicle service contract, the term begins with the date of purchase and current mileage. (Example: You purchase a 72/72,000 used vehicle service contract when your vehicle has 60,000 miles on it – the term will end 72 months from the date the contract is purchase, or when your vehicle reaches 132,000 miles)
Waiting Period: Most service contracts that you purchase from an online source have a waiting period of 30 days and 1,000 miles. When you purchase in a dealership, the dealer knows the condition of your vehicle and knows it is not about to break down. When you purchase from an online source, the administrator does not know the condition of your vehicle, so they place a waiting period into their contracts to insure against someone with a broken down vehicle purchasing a contract to cover their current repair cost. The 30 days and 1,000 miles are generally added to the end of your contract period.
Deductible: Unlike a warranty, your service contract will come with a choice of deductibles. The deductible you choose will apply to each claim made against the contract. Deductibles range from zero to $200.
Where to Buy
When deciding where to purchase a vehicle service contract, check around. Check out the administrator, the insurance, the price, Better Business Bureau complaints and any customer service issues. You have choices about extending your warranty.
Dealerships The dealership will offer you one at the time of purchase. The advantages to buying from your dealer include the trust you have already placed in them, convenience of having the cost in your car loan, and the ease of maintenance records keeping when you return to them for servicing.
Online Providers The most obvious advantage to buying online is the price. It is generally much lower than that of your dealership because there are fewer parties receiving commission on the sale. The dealership and agent both get paid a commission when buying with your car. Most online providers will also offer low cost or free financing into convenient monthly payments so that you can avoid a large cost upfront.
Compare the cost among several providers. The price can vary on a similar contract by as much as $1,500 to $2,000. Some of the larger online providers employ hard sell techniques because they pay their staff on commission. Those with the best price and service will have a salaried sales staff.
Backed by Insurance When you choose to extend your warranty with a service contract, you should be sure the plan is backed by a strong (at least A rated by AM Best) insurance company. Those that are backed by insurance are much less likely to go out of business and stop paying claims.
Should you buy one?
Extending your auto warranty with a service contract can provide financial stability because it prevents unforeseen, and un-budgeted, expenses. By paying for a service contract now, you can control when your expenses occur. Most online providers will also offer monthly payments, making the expense that much easier.
When to buy
The best time to extend your warranty is before it expires. Then you are not left without protection and you will also get the best pricing. The more miles your vehicle has on it, the more expensive the service contract price for a shorter period of protection.