Auto Repair Extended Warranties: Should You Buy One?

February 25, 2011

Extended auto warranties, a term the Federal Trade Commission hates, is a source of endless complaints from consumers to state consumer protection agencies, AG offices, and the Better Business Bureau.

Their price ranges from $800 to sometimes over $2000. Based on a 2007 survey of over 8000 owners of five- and six-year-old cars, Consumer Reports found that serious repairs are often not experienced during the contract period, which makes the service contract a questionable investment. It's especially called into question because, despite some big vehicle recalls in the past two years, the national fleet is of better quality than in years past.

This may not be news to the majority of the car owners, which is reflected in the CR survey, since three-quarters of the participants turned down the service contract pitch based on a lack of perceived value. Part of the problem is that the writers of the policies have studied the failure rates of specific parts and have the ability to exclude them from coverage. As the product rating magazine states, this puts the consumer in the position of "betting against the house."

But what if you are by temperament someone who prefers a buffer against large repair bills, and the idea of a service contract fits nicely into your comfort zone, how do you avoid getting taken?

The FTC offers these tips:

Respond to phone calls warily, since your new car warranty may still be in force or already expired. Go to the source - your owner's manual, or call the selling dealer to find out;

Be alert to fast talkers who exert high pressure and try to hurry you into a final decision;

Be protective of all your personal information including your social security and driver's license numbers even your VIN. This may not be about a service contract at all but rather a scheme to obtain personal information and then perpetrate other types of fraud;

Before you commit, check out the contract administrator with the Better Business Bureau, your state's Attorney General's office and the local consumer protection agency. Confirm that there are no unresolved complaints open on the company.

If you have any doubts about either the need for or the reliability of the service contract company do some level one research. Google U.S. Fidelis and it is very easy to see how lucrative this type of business can be and how badly wrong it can go.  

By the way the FTC prefers the label "service contracts" and stresses that only the manufacturer can offer a warranty. The other difference is that warranties are free, and service contracts are far from it.

[Federal Trade Commission & Consumer Reports]

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