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Automotive Repair Contracts: Worth Anything?

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What is an Automotive Service Contract or Extended Warranty? These are basically insurance policies for your car or trucks repairs and/or maintenance. They are usually fairly inexpensive when worked into your car's payment schedule, but the price can be pretty high overall. Some contracts cover only major repairs like engine or transmission. Others will pay for even small repairs you need.
Automotive Service Contracts may sound like a great idea when you're sitting at a desk and a salesman is explaining to you that you can buy automotive peace of mind for only $5 additional added to your monthly payment, but be sure you look at all sides of this equation before you make the leap. It may be only five bucks a month, but over the life of a 5-year car loan you're talking $300! This means before you start to reap the benefits of your service contract, you have to spend more than $300 on repairs!
You also have to take a look at what the contract really offers. There are so many variations of these contracts that I can't possibly explore every possibility here, but you need to be really sure what is covered, and how much is covered, for a specific repair. I've seen contracts that cover labor but no parts, or parts but no labor, or parts + 50% of labor! These will leave you feeling a little ripped off.
To get down to brass tacks, I've never seen a service contract that is worth buying. Sure, you can find examples where somebody saved thousands because they were lucky enough to have a good, comprehensive service contract sold to them by a company that actually backed it up, but these are few and far between. Most people will never get the chance to cash in on their contract and have wasted the money. I don't even belive in full coverage auto insurance, but that's another discussion!

Check out what the Better Business Bureau had to say about buying a service contract:

Read the contract carefully. Know what is covered and not covered and under what conditions. If the seller won't provide a contract, don't buy it.
Do the arithmetic. The cost of a contract can be more than the car's value.
Ask Questions. Ask the seller the names and locations of the providers, administrators and insurers. Ask how claims are processed.
Do not be pressured into making an immediate decision. Beware of sales offers that require you to buy immediately in order to qualify for the best rate.
Beware of any claims that you will receive "total" or "bumper to bumper" coverage on your vehicle. This does not necessarily mean that every problem with your car will be covered.
Read Carefully. Inspectyour manufacturer's warranty and contact your dealer or manufacturer to make sure you are not purchasing duplicate coverage.
Check all companies involved. This can be done through your BBB or at www.bbb.org. For even more info, check out what Consumer Reports has to say. There is also a good piece of information here at the Federal Trade Commission site.

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