Auto Warranties and Auto Service Contracts

Differences Between Auto Warranties and Auto Service Contracts

An auto warranty is a promise to fix certain defects or malfunctions during a specific timeframe after you buy a vehicle. A manufacturer’s warranty is included in the price of a new vehicle, and often covers your vehicle for a certain number of months or miles, whichever comes first. A used vehicle might come with some type of warranty coverage, too.

Auto service contracts — sometimes called “extended warranties” — are optional contracts sold by vehicle manufacturers, dealers, or independent companies. The contract seller agrees to perform (or pay for) certain repairs or services outlined in the contract. It’s common for a contract to cover your vehicle for a certain number of months or miles. Contract prices and coverage vary widely. Some auto service contracts will extend the length or coverage of the warranty that came with your vehicle, and others will cover some maintenance tasks like scheduled oil changes. They typically don’t cover damage that may occur in an accident or normal wear and tear to the vehicle. An auto service contract or extended warranty is not a warranty as defined by federal law, because you buy it separately; it’s not included when you buy a car.

Facts About Auto Warranties

You don’t have to use the dealer for repairs or maintenance to keep your warranty in effect. In fact, it’s illegal for a dealer to deny your warranty coverage because you had routine maintenance or repairs done by someone else. But if the warranty says that the work will be done for free, the dealer or manufacturer can make you use repair facilities it chooses. And if the warranty says you will get parts for free, the dealer or manufacturer can require you to use parts it chooses.

Your warranty stays in effect if you use aftermarket or recycled parts.

• An aftermarket part is a part made by a company that didn’t make your vehicle.
• A recycled part is made for and installed in a new vehicle, then removed and made available for resale or reuse.

But if someone installs a defective aftermarket or recycled part, or doesn’t install a part correctly, it could damage a part that the warranty covers. If that happens, the manufacturer or dealer can deny warranty coverage for the damaged part and charge you for repairs. The manufacturer or dealer must prove the aftermarket or recycled part caused the damage before they can deny warranty coverage.

The warranty company could ask for your maintenance records. Keep records of repairs and maintenance like oil changes, tire rotations, belt replacement, new brake pads, and inspections. The records will be helpful if you have to use your warranty and show that you properly maintained your vehicle. Otherwise, your claim might be denied.

Facts About Auto Service Contracts

When you buy a new or used car, dealers or independent companies will often try to get you to buy an auto service contract — which is sometimes called an “extended warranty.” Auto service contracts are optional products and can be expensive. Dealers typically mention auto service contracts and other “add-ons” after you’ve spent a long day at the dealership. Or they may try to include them in the paperwork you must review, without discussing them with you, and without your understanding or approval.

Before you buy an auto service contract, compare it to the manufacturer’s warranty that came with your car. New cars usually come with warranties for a certain number of months or miles, whichever comes first. Start by checking the dates of coverage. It probably won’t help to have a service contract that starts before the manufacturer’s warranty expires. Ask questions and get answers in writing about

How much it costs. What you’ll pay for coverage is usually based on whether a vehicle is new or used, its make and model, what repairs or services are covered, and how long the contract lasts. Prices can range from several hundred dollars to several thousand. You also may need to pay a deductible each time your vehicle is serviced or repaired.

The company’s reputation. The value of an auto service contract is only as good as the company that’s responsible for coverage. Find out who is offering the contract. It could be the manufacturer, the dealer, or an independent company. Many service contracts sold by dealers are handled by independent companies called administrators. Administrators make the decisions about authorizing the payment of claims under the contract. Read the offered contract before you sign to learn if you have rights if the administrator declines to pay a claim.

The length of coverage. If the service contract lasts longer than you expect to own the vehicle, find out if you’re allowed to transfer it when you sell the vehicle, if there’s a fee, or if you can get a shorter contract.

What’s covered. Few auto service contracts cover all repairs and maintenance. Find out what limitations apply. For example, if the contract says it covers only “mechanical breakdowns,” it may not cover problems caused by normal wear and tear. Also find out

• How much — if anything — will it pay for towing or related rental car expenses?.
• How much will it pay for the parts it covers? Some companies use a depreciation factor when they calculate coverage and pay only partial repair or replacement costs based on your vehicle’s mileage.
• Does it require the use of remanufactured or used replacement parts in your vehicle? What happens if a mechanic won’t accept those?
• If the engine must be taken apart to diagnose a problem, and the mechanic finds non-covered parts that need repairs or replacement, will you have to pay for the labor to tear down and re-assemble the engine?
• Does it cover a mechanic’s actual labor cost, or only up to a certain amount?

How you get service. Some auto service contracts let you choose among several authorized service or repair centers. Others make you use the dealer that sold you the vehicle. Find out if you need to get pre-approval from the company that provided the contract for any repair work or towing services or from a third party. If the contract limits who can provide services, consider whether the contract will have value if you move.

The contract might require you to follow all the manufacturer’s recommendations for routine maintenance, like oil changes. If you don’t, it might void the contract and end coverage. Keep your service records and receipts to show you’ve maintained your vehicle.

Claims. The service contract should explain how to make a claim for covered repairs, how you get reimbursed, and how long it takes to get your money. If you have a dispute about whether a claim should be paid, deal with the administrator. If the administrator goes out of business, the dealer may have to do the work under the contract. Or if the dealer goes out of business, the administrator might be required to fulfill the terms of the contract.

Auto Service Contract and Extended Warranty Scams

You may get service contract offers at home, long after you bought your vehicle. Have you ever gotten calls, texts, or mail warning that your warranty is about to expire? The companies behind the messages may give the impression they represent your vehicle dealer or manufacturer. They use phrases like “Motor Vehicle Notification,” “Final Warranty Notice,” or “Notice of Interruption” to make the offer seem urgent — and to get you to respond. They’re likely trying to sell you an auto service contract, but they might call it an extended warranty.

The truth is

• They probably aren’t working with your vehicle dealer or manufacturer.
• If you respond, they’ll probably pressure you to give them personal financial information and a down payment right away, before you they give you details about the service contract.
• If you buy a service contract from one of these companies, they may not be in business when you need to use the contract.
• There may be so many limits and conditions on which repairs are covered, and who can provide the repairs, that the service contract is worthless.

Report a Problem

If you have a problem with an auto service contract or extended warranty, contact

• your car dealer
• the auto service contract company

If that doesn’t work, report it to

• your state attorney general
• the FTC at ReportFraud.ftc.gov