Automobile Service Contracts: Are They Worth it?
Before buying a car service contract, consider the cost, length, and coverage.
An automobile service contract is similar to a warranty -- they both promise to perform or pay for certain repairs or services to your car. However, unlike a warranty, a service contract always costs extra. (To learn more about warranties, see Car Warranties: The Basics.)
Sometimes service contracts are worth the extra money, but often they’re not. To determine if a particular contract is worth the money, carefully consider the following:
- Does it duplicate warranty coverage?
- How much does it cost and how long does it last?
- Is there a deductible, and if so, how much is it?
- What repairs and services does it cover?
- Who will perform the repairs?
- What company backs the contract?
- Does your lender require a service contract?
Check for Duplicate Warranty Coverage
Often, the coverage in a service contract is duplicated by a warranty that already covers your car. Before paying hundreds of dollars (or more) for a service contract, find out the exact terms of the contract and compare them carefully to all warranties that cover your car. In some states, a service contract cannot be in effect while the express warranty is in effect unless the service contract offers additional protections.
Cost and Length of the Service Contract
The price of a service contract is usually based on the car's make, model, condition, as well as the contract's coverage and length. The initial price can range from several hundred dollars to more than $1,000. In addition, you may be required to pay a deductible each time your car is serviced or repaired. Finally, some contracts charge fees if you sell your car and transfer the contract to the new owner or even if you cancel the contract.
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