North Carolina Department of Justice

North Carolina Department of Justice

North Carolina Department of Justice
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Know the facts about car service contracts

3/30/2010

By Attorney General Roy Cooper
With all of the recent news about car recalls and repairs, you may be tempted to buy an extended service contract for your car. While these offers may seem like a way to save money on car repairs, most consumers have found that service contracts rarely live up to their expectations.
 
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 car 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. 
 
Each year, my office hears from hundreds of consumers who are unsatisfied with extended service contracts. Most consumers complain about misleading statements made about what the service contract actually covers and companies denying valid claims. 
 
For example, a salesperson might tell you that the service contract covers your car for 150,000 miles when it really only provides coverage for up to 75,000 miles. Consumers also complain that companies give them the run around when it is time to pay for valid repairs by requiring unrelated paperwork or claiming the problem was caused by something not covered by the service contract.  
 
In February of 2009, we went to court to stop a company called Automotive Protection that used tricky telemarketing techniques to lure seniors into buying extended service contracts. More than two dozen consumers filed complaints with my office because the service contracts didn’t cover all the things the telemarketer promised and the company refused to provide full refunds. 
 
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. If the service 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.