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Auto Service Contracts

    Buying a car? You also may be encouraged to buy an Auto Service Contract to help protect against unexpected, costly repairs. While it may sound like a good idea, don't buy in until you understand both the terms of the contract and who is responsible for providing the coverage.
» The Auto Service Contract
» How Much Does It Cost?
» How Are Claims Handled?
» Length Of The Contract?

What Is The Length Of The Service Contract?
If the service contract lasts longer than you expect to own the car, find out if it can be transferred when you sell the car, whether there's a fee, or if a shorter contract is available.

Other Tips

If you're told you must purchase an auto service contract to qualify for financing, contact the lender yourself to find out if this is true. Some consumers have had trouble canceling their service contract after discovering the lender didn't require one.

If you decide to buy a service contract through a car dealership, and an administrator and/or a third party backs the contract, make sure the dealer forwards your payment and gives you written confirmation. Some consumers have discovered too late that the dealer failed to forward their payment, leaving them with no coverage months after they signed a contract. Contact your local or state consumer protection office if you have reason to believe that your contract wasn't put into effect as agreed.

In some states, service contract providers are subject to insurance regulations. Find out if this is true in your state. Insurance regulations generally require companies to:

  1. Maintain an adequate financial reserve to pay claims.
  2. Base their contract fees on expected claims. Some service providers have been known to make huge profits because the cost of their contracts far exceeds the cost of repairs or services they provide.
  3. Seek approval from the state insurance office for premiums or contract fees.


To report contract problems with a service provider, contact your local and state consumer protection agencies, including the state insurance commissioner and state attorney general.

If you need help resolving a dispute, contact the Better Business Bureau, the state attorney general, or the consumer protection office in your area. Also, contact law schools in your area and ask if they have dispute resolution programs.

» Part 1       » Part 2       » Part 3       » Part 4
Additional Information provided courtesy of and Warranty Direct
© 2000-2007 Vincent T. Ciulla

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