Should I buy a Service Contract for a Used Vehicle?

A service contract is a promise to perform (or pay for) certain repairs or services. Sometimes called an “extended warranty,” a service contract is not a warranty. You can buy a service contract anytime. They’re sold by car manufacturers and dealers, and independent companies. Prices and coverage vary widely.

To decide if you need a service contract, consider these questions:

• Does the service contract duplicate warranty coverage you already have? Does it begin after your current warranty runs out? If the service contract lasts longer than you expect to own the car, is it transferable, or is a shorter contract available?
• Is the car likely to need repairs, and how much are they going to cost? Is the cost of repairs likely to be more than the price of the contract?
• Will the service contract cover all parts and systems? Does “bumper to bumper” coverage mean what you think?
• Is a deductible required, and if so, how much and under what terms?
• Does the contract cover incidental expenses, like towing and rental car charges while your car is being serviced?
• Will repairs and routine maintenance have to be done at the dealer?
• Is there a cancellation and refund policy for the service contract? Are there cancellation fees?
• Is the dealer or company offering the service contract reputable? Does the dealer sell third-party service contracts?

If you buy a service contract from the dealer within 90 days of buying a used car, the dealer can’t remove 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 warranties may give you protection beyond the scope of the service contract. Make sure you get written confirmation that your service contract is in effect.

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