Who is authorized to do repairs under a service contract may make a big difference in your decision whether to buy it. Some contracts allow you to choose among several service dealers or authorized repair centers. Or you may be required to return the vehicle to the selling dealer for service. That could be inconvenient if you bought the car from a dealership in another town.
Find out if your car will be covered if it breaks down while you're out of town -- for example, while you're on a trip or if you move permanently. Some auto service contract companies and dealers offer service only in specific geographic areas. Under some contracts, you are also required to get prior authorization for any repair work or towing services. This could be a problem if the company doesn't have a toll-free phone number or is open only during business hours.
Find out who is responsible for guaranteeing service under the contract. It may be the manufacturer, the dealer, or an independent company (also called an administrator). Some dealers assume all responsibility for the service contract. Others will sell you the service contract, but another entity is actually the backer (and therefore responsible for making sure you get what you pay for).
Because the contract is only valuable if the backer makes good on the terms, learn as much as you can about the reputation of the company. Contact your local state consumer protection office (for the office in your state, see Nolo's article State Consumer Protection Offices), the state motor vehicle department, the local Better Business Bureau at www.bbb.org, or your local automobile dealer association.
In addition, find out if the contract is underwritten by an insurance company. This is required in some states.
The dealer may claim you need a service contact to get financing for your car. This is often not true. Always check with the lender yourself -- don't rely on the dealer's word.
If your new car breaks down often, it may qualify as a "lemon." To learn what your remedies are if you have a lemon, see Nolo's article Lemon Law for Used Cars.
To learn more about leasing or purchasing a used or new car, get Nolos Encyclopedia of Everyday Law, by Shae Irving and the editors of Nolo. This handy guide contains hundreds of answers to the average Americans most frequently asked legal questions.
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