Do You REALLY Need the Extended Service Contract?

Getting a car warrantyAn extended service contract (also called a vehicle service agreement or extended service agreement) can offer you peace of mind when it comes to maintaining your new car. Is it really necessary though? We are asked this question all the time. And the answer is, (as is often the case) it depends. Are you buying a car with a good track record when it comes to needing (or rather, not needing) repairs? Or are you buying a model that perhaps needs more repairs than other cars in the same class? You should be able to find this information as part of your due diligence before buying any new car. In general, the bumper-to-bumper warranties that come with most new cars today are much more comprehensive when it comes to coverage than extended service contracts.

Reasons to consider an extended service contract include:

  • Vehicles with low quality ratings (vehicle quality ratings are easily found online)
  • Vehicles that tend to need expensive repairs. Repair needs vary greatly between makes and models. If you are purchasing a car with a good track record, you may just want to pay for minor repairs out of pocket.
  • Your financial situation. If you are on a tight budget and don’t like “surprise” repair costs, you might want to consider an extended service contract so that you won’t be caught off guard by an expensive repair.
  • Resale value. While this should be a minor point in your consideration, many extended service contracts are transferable to a new owner, which may help the resale value if you decide to sell your car with its contract in the future.

If you decide to go ahead with an extended service contract, shop around for a third-party contract before committing to the dealer-offered contract. There are different plans available, and you should understand your options when it comes to rates, terms and deductibles. You may end up with the contract offered by your dealer; but make an educated decision on which contract to purchase. You may find a plan that meets your needs better from a third-party.

August 20, 2013 by Jamie Rettig