Learn When What Features to Look for: Extended Service Contracts

It’s a good idea for many car owners to purchase extended service contracts. But it’s also easy to be ripped off by smooth-talking dealers. How can you find a good extended service contract that you will not later regret purchasing? Continue reading to get some solid advice and tips that will help you better understand service contracts and choose the most cost-effective route.  

You may have the benefits of extended service contracts pointed out to you when you buy your new car. But it’s hard to trust the dealers. You know they’re more interested in making a commission than in protecting your interests. Is the service contract going to benefit you or not? Well, of course, like most other things, it depends on your personal situation. We’ll give you some guidelines so you can decide whether service contracts are right for you.

What Are Service Contracts

Extended service contracts allow you to pay a fee and obtain more coverage than your warranty offers. They are often called “extended warranties,” but, according to federal law, service contracts are not actually warranties because they cost extra. You can purchase them when you buy your car, or later; from the dealer who sold you the car, or another dealership. If you’re unsure as to whether the contract the dealer offers you is a good deal, you’re under no obligation to purchase it right away. You can always do so later if you decide to.

Why Buy an Extended Contract

The benefits of extended service contracts are obvious. Your car is a big investment, one that is important to your daily life, and if your warranty does not cover as much as you want it to, for as long as you want it to, a service contract may make up the difference.

When Not to Buy an Extended Contract

Don’t pay for a service contract if it duplicates, or overlaps the warranty you already have. New cars always come with a manufacturer’s warranty. Even used cars often have some type of coverage. You should only purchase a service contract if it will be a valuable addition to your warranty, complementing it rather than copying it.

Don’t get an extended service contract when it costs more than it’s worth. Extended service contracts range in cost from about $400-$1200. Not only do you have to pay upfront for contracts, in many cases you must also pay a deductible in the event that services are needed. Find out exactly what is covered, where you are covered (some service contracts are not useful if you move or when you’re out of town since your car may have to be taken to that particular dealership for free repairs), and what you have to pay for it.

If the company backing the contract is unstable. You need to check into their financial status to determine the likelihood that they will be able to make good on the coverage they promise you. Ask what will happen with your service contract if they go out of business.


It’s a common scam for vendors to claim that you must purchase an extended service contract to qualify for financing. Contact the lender yourself to find out if this is true.

The price of extended contracts is usually negotiable. You may be able to get as much as 50% taken off the price. Shop around, and use your bargaining skills.

Although it may be a hassle, read all that fine print. Service contracts vary widely, and it’s important to know exactly what you will get with the contract, and exactly what you will be required to pay for it. Don’t let yourself be pushed into anything rash by the dealer, remember that you can purchase an extended contract anytime. But don’t put it off too long. It’s usually a good idea to have one in case of accidents or problems that your warranty doesn’t cover.