Know More About Auto Service Contracts and Warranties

If you’re shopping for a new or used car, the salesperson may encourage you to buy an auto service contract to help protect against unexpected or costly repairs. While a service contract may sound like a good idea, it may overlap with the vehicle’s existing manufacturer’s warranty. So before you spend the extra money, do some research to see if an auto service contract makes sense. Coverage varies widely.

  • Auto Service Contracts 101
  • Research Your Options
  • Beware of Auto Warranty Scams
  • Used Cars: Warranty Protection
  • Complaints

Auto Service Contracts 101

A service contract is a promise to perform (or pay for) certain repairs or services. Sometimes called an “extended warranty,” a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the purchase price. Used cars also may come with some type of warranty coverage.

Research Your Options

Auto service contracts are sold by vehicle manufacturers, auto dealers, and independent providers. If you’re considering a service contract, shop around so you understand exactly what you’re buying.

Do I have to buy a service contract?

You are generally not required to buy an auto service contract when you buy a car. You also are generally not required to buy a service contract to get financing. If the dealer tells you that you have to buy a service contract to qualify for financing, contact the lender to find out if this is true. Some people have had trouble canceling their service contract after learning that the lender didn’t require one.

Also beware of unscrupulous dealers who may try to include an auto service contract in your loan without your consent. If you see a charge for a service contract that you didn’t agree to, tell the dealer to take it out before you sign the loan agreement.

Does the service contract duplicate any warranty coverage?

Compare service contracts with the manufacturer’s warranty. New cars come with a manufacturer’s warranty, which usually offers coverage for at least three years or 36,000 miles, whichever comes first. A service contract likely will not provide benefits until the manufacturer’s warranty expires. Check over the documents to make sure this is true before you agree to buy a service contract.

What is the length of the service contract?

If the service contract lasts longer than you expect to own the car, ask if it can be transferred when you sell the car and whether there is a fee, or if a shorter contract is available. If you’re buying a “demonstrator” — a new car that hasn’t been owned, leased, or used as a rental, but has been driven by dealer staff — ask when the warranty coverage begins and ends. It may have begun when the dealer put the car into service.

Who backs the service contract?

Find out who performs or pays for repairs under the terms of the service contract. It may be the manufacturer, the dealer, or an independent company. Many service contracts are handled by companies called administrators, that authorize the payment of claims to any dealers under the contract. If you have a dispute over whether a claim should be paid, deal with the administrator. If the administrator goes out of business, the dealership still may be obligated to perform under the contract. The reverse also may be true: If the dealer goes out of business, the administrator may be required to fulfill the terms of the contract. Whether you have any legal remedies depends on your contract’s terms and/or your state’s laws.

Find out if the auto service contract is underwritten by an insurance company. It’s required in some states. If the contract is backed by an insurance company, contact your state insurance commission to ask about the solvency of the company and whether any complaints are on file.

Insurance regulations generally require companies to:

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

Check out the dealer and the administrator with your local or state consumer protection office or local automobile dealers association to see if any complaints are on file against the company. You also can search online for complaints.

If you decide to buy a service contract through a dealership — and the contract is backed by an administrator or a third party — make sure the dealer forwards your payment and you get written confirmation. Some people 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.

How much does it cost?

Usually, the price of the service contract is based on the car make, model, condition (new or used), coverage, and length of contract. The upfront cost can range from one to several thousand dollars. In addition, you may need to pay a deductible. Find out if the deductible is charged on a per visit or per repair basis. This can make a big difference. For example, assume you have a $100 deductible and your car needs three parts repaired. With the deductible per visit, you pay $100. If you have a deductible per repair, you pay $300.

Service contracts often limit how much they will pay for towing or related rental car expenses — meaning you have to cover the remaining cost. There also may be transfer or cancellation fees if you sell your car or end the contract early.

What’s covered?

Few service contracts cover all repairs. Common repairs for parts like brakes and clutches generally are not included in auto service contracts. The best advice: If an item isn’t listed, assume it’s not covered. Watch out for absolute exclusions that deny coverage for any reason. For example: If a covered part is damaged by a non-covered part, the claim may be denied. Or if the contract specifies that only “mechanical breakdowns” will be covered, problems caused by “normal wear and tear” may be excluded. If the engine has to be taken apart to diagnose a problem and during the process the mechanic discovers non-covered parts that need to be repaired or replaced, you may have to pay for the labor involved in the tear-down and re-assembling of the engine.

You may not have full protection even for parts that are covered in the contract. Some companies use a “depreciation factor” in calculating coverage: the company may pay only partial repair or replacement costs based on your car’s mileage.

How are claims handled?

When your car needs to be repaired or serviced, you may be able to choose among several service dealers or authorized repair centers. Or, you may have to take it to the dealer you bought it from. That could be inconvenient if you bought the car from a dealership in another town. Find out if your car will be covered if it breaks down while you’re using it on a trip or if you take it when you move out of town.

Some auto service contract companies and dealers offer service only in specific geographical areas. Find out if you need prior authorization from the contract provider for any repair work or towing services. Be sure to ask: how long it takes to get authorization, whether you can get authorization outside of normal business hours, and whether the company has a toll-free number for authorization. Test the toll-free number before you buy the contract to see if you can get through easily.

You may have to pay for covered repairs and then wait for the service company to reimburse you. If the auto service contract doesn’t specify how long reimbursement usually takes, ask. Find out who settles claims in case you have a dispute with the service contract provider and need to use a dispute resolution program.

Are new or reconditioned parts authorized for use in covered repairs?

If this concerns you, you will want to know whether the authorized repair facility maintains an adequate stock of parts. Repair delays may occur if authorized parts are not readily available and must be ordered.

What are my responsibilities?

Under the service contract, you may have to follow all the manufacturer’s recommendations for routine maintenance, like oil changes. If you don’t, it could void the contract. To prove you have maintained the car properly, keep detailed records, including receipts. Find out if the contract prohibits you from taking the car to an independent station for routine maintenance or performing the work yourself. The contract may specify that the dealer that sold you the car is the only authorized facility for servicing the car.

Beware of Auto Warranty Scams

Be skeptical of mail and phone calls warning that the warranty on your car is about to expire. The companies behind the letters and calls may give the impression they represent your car dealer or manufacturer. With phrases like Motor Vehicle Notification, Final Warranty Notice or Notice of Interruption, they are trying to make the offer seem urgent — and to get you to call a toll-free number for more information. Investigate before you buy.

More than likely, these pitches are from unrelated businesses that want to sell you extended warranties — more accurately known as service contracts — that often sell for hundreds or thousands of dollars. If you respond to a call from a business pitching so-called extended warranties, you’re likely to hear high-pressure sales tactics, as well as demands for personal financial information and a down payment, before you get any details about the service contract. And if you buy a service contract, you may find that the company behind it won’t be in business long enough to fulfill its commitments.

Steer Clear of Auto Warranty Scams

If you get mail or phone calls about renewing your vehicle warranty, don’t take the information at face value. Your vehicle’s warranty may be far from expiring — or it may have expired already. If you have a question about your warranty, check your owner’s manual, call the dealer who sold you the car, or contact the vehicle manufacturer.

Be alert to fast talkers. Telemarketers pitching auto warranties often use high-pressure tactics to hide their true motive. Take your time. Most legitimate businesses will give you time and written information about an offer before asking you to commit to a purchase.

Never give out personal financial or other sensitive information like your bank account, credit card or Social Security numbers – even your driver’s license number or Vehicle Identification Number (VIN) – unless you know who you’re dealing with. Scam artists often ask for this information during an unsolicited sales pitch, and then use it to commit other frauds against you.

Be skeptical of any unsolicited sales calls and recorded messages. If your phone number is on the National Do Not Call Registry: You shouldn’t get live or recorded sales pitches unless you have specifically agreed to accept such calls, bought something from the company within the last 18 months, or asked the company for information within the last three months. Read Robocalls to learn more. To report violations of the National Do Not Call Registry or to register a phone number, visit DoNotCall.gov or call 1-888-382-1222.

Used Cars: Warranty Protection

When shopping for a used car, look for the Buyer’s Guide posted on the side window. The FTC requires the Guide on all used cars sold by dealers. It tells whether a service contract is available. It also indicates whether the vehicle is being sold with a warranty, with implied warranties only, or “as is.”

Warranty. If the manufacturer’s warranty is still in effect on the used car, you may have to pay a fee to get coverage, making it a service contract. However, if the dealer absorbs the cost of the manufacturer’s fee, the coverage is considered a warranty.

Implied Warranties Only. There are two common types of implied warranties. Both are unspoken and unwritten, and based on the principle that the seller stands behind the product. Under a “warranty of merchantability,” the seller promises the product will do what it is supposed to do. For example, a toaster will toast, or a car will run. If the car doesn’t run, implied-warranties law says that the dealer must fix it (unless it was sold “as is”) so that the buyer gets a working car. A “warranty of fitness for a particular purpose” applies when you buy a vehicle on a dealer’s advice that it is suitable for a certain use, like hauling a trailer. Used cars usually are covered by implied warranties under state law.

As Is – No Warranty. If you buy a car “as is,” you must pay for all repairs, even if the car breaks down on the way home from the dealership. However, if you buy a dealer-service contract within 90 days of buying the used car, state law “implied warranties” may give you additional rights.

Some states prohibit “as is” sales on most or all used cars. Other states require the use of specific words to disclaim implied warranties. In addition, some states have used car “lemon laws” under which a consumer can receive a refund or replacement if the vehicle is seriously defective. To find out about your state laws, check with your local or state consumer protection office or attorney general.

Premium for High Octane Gasoline

Unless it’s recommended by your owner’s manual, don’t spend the money on high octane gas. In most cases, there’s no benefit. Higher octane helps only if you have problems with your engine “knocking.”

  • Read Your Owner’s Manual
  • About Octane Ratings
  • Report Labeling Problems

Read Your Owner’s Manual

Unless your engine is knocking, buying higher octane gasoline is a waste of money. Premium gas costs 15 to 20 cents per gallon more than regular. That can add up to $100 or more a year in extra costs. Studies indicate that altogether, drivers may be spending hundreds of millions of dollars each year for higher octane gas than they need.

It may seem like buying higher octane “premium” gas is like giving your car a treat, or boosting its performance. But take note: the recommended gasoline for most cars is regular octane. In fact, in most cases, using a higher octane gasoline than your owner’s manual recommends offers absolutely no benefit. It won’t make your car perform better, go faster, get better mileage, or run cleaner. Your best bet: listen to your owner’s manual.

The only time you might need to switch to a higher octane level is if your car engine knocks when you use the recommended fuel. This happens to a small percentage of cars.

About Octane Ratings

What are octane ratings?

Octane ratings measure a gasoline’s ability to resist engine knock — a rattling or pinging sound that results from premature ignition of the compressed fuel-air mixture in one or more cylinders. Most gas stations offer three octane grades: regular (usually 87 octane), mid-grade (usually 89 octane), and premium (usually 92 or 93). The ratings are posted on bright yellow stickers on each gas pump.

What’s the right octane level for your car?

Check your owner’s manual. Regular octane is recommended for most cars. However, some cars with high compression engines, like sports cars and certain luxury cars, need mid-grade or premium gasoline to prevent knocking.

How can you tell if you’re using the right octane level? Listen to your car’s engine. If it doesn’t knock when you use the recommended octane, you’re using the right grade of gasoline.

Will higher octane gasoline clean your engine better?

No, as a rule, high octane gasoline doesn’t outperform regular octane in preventing engine deposits from forming, in removing them, or in cleaning your car’s engine. In fact, the U.S. Environmental Protection Agency requires that all octane grades of all brands of gasoline contain engine cleaning detergent additives to protect against the build-up of harmful levels of engine deposits during the expected life of your car.

Should you ever switch to a higher octane gasoline?

A few car engines may knock or ping even if you use the recommended octane. If this happens, try switching to the next highest octane grade. In many cases, switching to the mid-grade or premium-grade gasoline will eliminate the knock. If the knocking or pinging continues after one or two fill-ups, you may need a tune-up or some other repair. After that work is done, go back to the lowest octane grade at which your engine runs without knocking.

Will knocking harm my engine?

Occasional light knocking or pinging won’t harm your engine, and doesn’t mean you need a higher octane. But a heavy or persistent knock can lead to engine damage.

Is all “premium” or “regular” gasoline the same?

The octane rating of gas labeled “premium” or “regular” isn’t the same across the country. One state may require a minimum octane rating of 92 for all premium gasoline, while another may allow 90 octane to be called premium. To make sure you know what you’re buying, check the octane rating on the yellow sticker on the gas pump.

Report Labeling Problems

If you don’t see a yellow octane sticker on a gasoline pump, file a complaint with the FTC. The FTC enforces the Fuel Rating Rule, designed to ensure producers and marketers give you the information you need at the pump.

Know More About Trouble Shooting

Car trouble doesn’t always mean major repairs. Here are some common causes of trouble and techniques to help you and your technician find and fix problems:

  • Alternator — Loose wiring can make your alternator appear defective. Your technician should check for loose connections and perform an output test before replacing the alternator.
  • Battery — Corroded or loose battery terminals can make the battery appear dead or defective. Your technician should clean the terminals and test battery function before replacing the battery.
  • Starter — What appears to be a defective starter actually may be a dead battery or poor connection. Ask your technician to check all connections and test the battery before repairing the starter.
  • Muffler — a loud rumbling noise under your vehicle indicates a need for a new muffler or exhaust pipe.
  • Tune-up — The old-fashioned “tune-up” may not be relevant to your vehicle. Fewer parts, other than belts, spark plugs, hoses and filters, need to be replaced on newer vehicles. Follow the recommendations in your owner’s manual.

Tips To Heading Off Problems

The more you know about your vehicle, the more likely you’ll be able to head off repair problems. You can detect many common vehicle problems by using your senses: eyeballing the area around your vehicle, listening for strange noises, sensing a difference in the way your vehicle handles, or even noticing unusual odors.

Looks Like Trouble

Small stains or an occasional drop of fluid under your vehicle may not mean much. But wet spots deserve attention; check puddles immediately.

You can identify fluids by their color and consistency:

  • Yellowish green, pastel blue or florescent orange colors indicate an overheated engine or an antifreeze leak caused by a bad hose, water pump or leaking radiator.
  • A dark brown or black oily fluid means the engine is leaking oil. A bad seal or gasket could cause the leak.
  • A red oily spot indicates a transmission or power-steering fluid leak.
  • A puddle of clear water usually is no problem. It may be normal condensation from your vehicle’s air conditioner.

Smells Like Trouble

Some problems are under your nose. You can detect them by their odor:

  • The smell of burned toast — a light, sharp odor — often signals an electrical short and burning insulation. To be safe, try not to drive the vehicle until the problem is diagnosed.
  • The smell of rotten eggs — a continuous burning-sulphur smell — usually indicates a problem in the catalytic converter or other emission control devices. Don’t delay diagnosis and repair.
  • A thick acrid odor usually means burning oil. Look for sign of a leak.
  • The smell of gasoline vapors after a failed start may mean you have flooded the engine. Wait a few minutes before trying again. If the odor persists, chances are there’s a leak in the fuel system — a potentially dangerous problem that needs immediate attention.
  • Burning resin or an acrid chemical odor may signal overheated brakes or clutch. Check the parking brake. Stop. Allow the brakes to cool after repeated hard braking on mountain roads. Light smoke coming from a wheel indicates a stuck brake. The vehicle should be towed for repair.
  • A sweet, steamy odor indicates a coolant leak. If the temperature gauge or warning light does not indicate overheating, drive carefully to the nearest service station, keeping an eye on your gauges. If the odor is accompanied by a hot, metallic scent and steam from under the hood, your engine has overheated. Pull over immediately. Continued driving could cause severe engine damage. The vehicle should be towed for repair.

Sounds Like Trouble

Squeaks, squeals, rattles, rumbles, and other sounds provide valuable clues about problems and maintenance needs. Here are some common noises and what they mean:

Squeal — A shrill, sharp noise, usually related to engine speed:

  • Loose or worn power steering, fan or air conditioning belt.

Click — A slight sharp noise, related to either engine speed or vehicle speed:

  • Loose wheel cover.
  • Loose or bent fan blade.
  • Stuck valve lifter or low engine oil.

Screech — A high-pitched, piercing metallic sound; usually occurs while the vehicle is in motion:

  • Caused by brake wear indicators to let you know it’s time for maintenance.

Rumble — a low-pitched rhythmic sound.

  • Defective exhaust pipe, converter or muffler.
  • Worn universal joint or other drive-line component.

Ping — A high-pitched metallic tapping sound, related to engine speed:

  • Usually caused by using gas with a lower octane rating than recommended. Check your owner’s manual for the proper octane rating. If the problem persists, engine ignition timing could be at fault.

Heavy Knock — A rhythmic pounding sound:

  • Worn crankshaft or connecting rod bearings.
  • Loose transmission torque converter.

Clunk — A random thumping sound:

  • Loose shock absorber or other suspension component.
  • Loose exhaust pipe or muffler.

Feels Like Trouble

Difficult handling, a rough ride, vibration and poor performance are symptoms you can feel. They almost always indicate a problem.

Steering

  • Misaligned front wheels and/or worn steering components, like the idler or ball joint, can cause wandering or difficulty steering in a straight line.
  • Pulling — the vehicle’s tendency to steer to the left or right — can be caused by something as routine as under-inflated tires, or as serious as a damaged or misaligned front end.

Ride and Handling

  • Worn shock absorbers or other suspension components — or improper tire inflation — can contribute to poor cornering.
  • While there is no hard and fast rule about when to replace shock absorbers or struts, try this test: bounce the vehicle up and down hard at each wheel and then let go. See how many times the vehicle bounces. Weak shocks will allow the vehicle to bounce twice or more.
  • Springs do not normally wear out and do not need replacement unless one corner of the vehicle is lower than the others. Overloading your vehicle can damage the springs.
  • Balance tires properly. An unbalanced or improperly balanced tire causes a vehicle to vibrate and may wear steering and suspension components prematurely.

Brakes

Brake problems have several symptoms. Schedule diagnosis and repair if:

  • The vehicle pulls to one side when the brakes are applied.
  • The brake pedal sinks to the floor when pressure is maintained.
  • You hear or feel scraping or grinding during braking.
  • The “brake” light on the instrument panel is lit.

Engine

The following symptoms indicate engine trouble. Get a diagnosis and schedule the repair.

  • Difficulty starting the engine.
  • The “check engine” light on the instrument panel is lit.
  • Rough idling or stalling.
  • Poor acceleration.
  • Poor fuel economy.
  • Excessive oil use (more than one quart between changes).
  • Engine continues running after the key is removed.

Transmission

Poor transmission performance may come from actual component failure or a simple disconnected hose or plugged filter. Make sure the technician checks the simple items first; transmission repairs normally are expensive. Some of the most common symptoms of transmission problems are:

  • Abrupt or hard shifts between gears.
  • Delayed or no response when shifting from neutral to drive or reverse.
  • Failure to shift during normal acceleration.
  • Slippage during acceleration. The engine speeds up, but the vehicle does not respond.

Let’s Learn About Auto Repair Basics

The best way to avoid auto repair rip-offs is to be prepared. Knowing how your vehicle works and how to identify common car problems is a good beginning. It’s also important to know how to choose a good mechanic, the kinds of questions to ask, and your consumer rights. This kind of information may help you keep a lid on mechanical mistakes.

Repair Information

How to Choose a Repair Shop

What should I look for when choosing a repair shop?

  • Ask for recommendations from friends, family, and other people you trust. Look for a repair shop before you need one to avoid being rushed into a last-minute decision.
  • Shop around by phone and online for the best deal, and compare warranty policies on repairs.
  • Ask to see current licenses if state or local law requires repair shops to be licensed or registered. Also, your state Attorney General’s office or local consumer protection agency may know whether there’s a record of complaints about a particular repair shop.
  • Make sure the shop will honor your vehicle’s warranty.

How to Choose a Technician

Is one technician better than another?

  • Look for shops that display various certifications — like an Automotive Service Excellence seal. Certification indicates that some or all of the technicians meet basic standards of knowledge and competence in specific technical areas. Make sure the certifications are current, but remember that certification alone is no guarantee of good or honest work.
  • Ask if the technician or shop has experience working on the same make or model vehicle as yours.

Repair Charges: Unlocking the Mystery

Before you arrange to have any work performed, ask how the shop prices its work. Some shops charge a flat rate for labor on auto repairs. This published rate is based on an independent or manufacturer’s estimate of the time required to complete repairs. Others charge on the basis of the actual time the technician worked on the repair.

If you need expensive or complicated repairs, or if you have questions about recommended work, consider getting a second opinion.

Find out if there will be a diagnostic charge if you decide to have the work performed elsewhere. Many repair shops charge for diagnostic time.

Shops that do only diagnostic work and do not sell parts or repairs may be able to give you an objective opinion about which repairs are necessary.

If you decide to get the work done, ask for a written estimate.

What should a written estimate include?

  • It should identify the condition to be repaired, the parts needed, and the anticipated labor charge. Make sure you get a signed copy.
  • It should state that the shop will contact you for approval before they do any work exceeding a specified amount of time or money. State law may require this.

What should I know about the parts to be repaired or replaced?

Parts are classified as:

  • New — These parts generally are made to original manufacturer’s specifications, either by the vehicle manufacturer or an independent company. Your state may require repair shops to tell you if non-original equipment will be used in the repair. Prices and quality of these parts vary.
  • Remanufactured, rebuilt and reconditioned — These terms generally mean the same thing: parts have been restored to a sound working condition. Many manufacturers offer a warranty covering replacement parts, but not the labor to install them.
  • Salvage — These are used parts taken from another vehicle without alteration. Salvage parts may be the only source for certain items, though their reliability is seldom guaranteed.

What do I need after the work is done?

Get a completed repair order describing the work done. It should list each repair, parts supplied, the cost of each part, labor charges, and the vehicle’s odometer reading when you brought the vehicle in as well as when the repair order was completed. Ask for all replaced parts. State law may require this.

Preventive Maintenance

What are the consequences of postponing maintenance?

Many parts on your vehicle are interrelated. Ignoring maintenance can lead to trouble: specific parts — or an entire system — can fail. Neglecting even simple routine maintenance, like changing the oil or checking the coolant, can lead to poor fuel economy, unreliability, or costly breakdowns. It also may invalidate your warranty.

What maintenance guidelines should I follow to avoid costly repairs?

Follow the manufacturer’s maintenance schedule in your owner’s manual for your type of driving. Some repair shops create their own maintenance schedules, which call for more frequent servicing than the manufacturer’s recommendations. Compare shop maintenance schedules with those recommended in your owner’s manual. Ask the repair shop to explain — and make sure you understand — why it recommends service beyond the recommended schedule.

Protecting Your Auto Repair Investment

What warranties and service contracts apply to vehicle repairs?

Warranties

There is no “standard warranty” on repairs. Make sure you understand what is covered under your warranty and get it in writing.

Warranties may be subject to limitations, including time, mileage, deductibles, businesses authorized to perform warranty work or special procedures required to obtain reimbursement.

Check with your state Attorney General or local consumer protection agency for information about your warranty rights.

Service Contracts

Many automobile dealers and others sell optional contracts — service contracts — issued by vehicle manufacturers or independent companies. Not all service contracts are the same; prices vary and usually are negotiable. To help decide whether to purchase a service contract, consider:

  • Its cost.
  • The repairs to be covered.
  • Whether coverage overlaps coverage provided by any other warranty.
  • The deductible.
  • Where the repairs are to be performed.
  • Procedures required to file a claim, like prior authorization for specific repairs or meeting required vehicle maintenance schedules.
  • Whether repair costs are paid directly by the company to the repair shop or whether you will have to pay first and get reimbursed.

How do I resolve a dispute regarding billing, quality of repairs or warranties?

  • Document all transactions as well as your experiences with dates, times, expenses, and the names of people you dealt with.
  • Talk to the shop manager or owner first. If that doesn’t work, contact your Attorney General or local consumer protection agency for help. These offices may have information on alternative dispute resolution programs in your community. Another option is to file a claim in small claims court. You don’t need an attorney to do this.