Service agreement

Commercials are in front of us now, the car companies are fading and we need extended service contracts. What’s the real deal on service contacts? Have they genuinely benefited consumers. Lead us in these matters

Avoid them, they are very expensive for what they supply. If you must get one, get only one backed by the manufacturer. For those you’re only paying double for what you’ll get back, on average. Third-party warranties can be worse that nothing at all, with frequent tales of refused services.

You can search for “extended warranty” and you’ll find extensive questions and answers about what you are calling service contracts. A few customers actually benefit, but these service agreements are priced to make a profit for the seller, not the buyer.

Very often the fine print makes reimbursement for repairs difficult and rejections of claims are common.

If you figure your new car will need more repairs and maintenance as it gets older you can budget accordingly. About the time the monthly payment are about done, the repair bills start to become more frequent. Few cars in the 5 to 10 years of life will require $300-400 a month for repairs which is a pretty common monthly payment.

“Commercials are in front of us now, the car companies are fading and we need extended service contracts”

Well, there are no commercials in front of me.
May I suggest that you sit somewhere else, where those commmercials would not be in front of you?

Seriously however, car companies are not “fading”.
Toyota is having some rough sledding right now, but they will emerge from this situation, albeit not with the same huge sales figures that they have enjoyed in the past. GM, Ford, Honda, Subaru, Hyundai, Kia, BMW and other players are benefiting from Toyota’s plight, and as a result they will soon be stronger than before. (Actually, both Subaru and Hyundai are stronger than they have ever been, and they are both now gaining even bigger sales figures than previously.)

It might be your perception that you need an extended service plan, but your perception is really not one that most of us on this forum share. All you need is a maintenance schedule from the vehicle’s mfr, a decent mechanic for your maintenance and your repair needs, and a reserve fund for future maintenance and repair.

The amount that you need to put into your reserve Car Maintenance and Repair Account will vary depending on the age and the make of your car. If you will reveal those details to us, we can advise you on how much to put into that reserve account each month in order to “self-insure” yourself against future expenses.

They are “pre-paid service contracts” not “extended warranties” (unless purchased from the dealership). You will be better off keeping your money in the bank.

If you are seriously considering one, talk to an independent mechanic (not a dealership) who specializes in your make. Ask them if they have ever seen an after-market service contract that ever paid for needed work.


Thanks, I have been keeping my own Audi’s alive for about 15 years and ±1,000,000 miles. Just a little concerned about the next generation of used cars I’ll be owning.

Extended service contracts are money making ventures. Like ALL ventures by for profit entities, the collective buying public, like the gambling casino user, looses. Paid benefits like winners at slots, are few compared to the number who loose.

This is the last “extended warranty” post I will ever answer. I am pro-extended warranty. BUT you must not buy the wrong contract. You must check the details on situations you don’t even know exist yet. Things like if a part fails due to wear or if a part fails due to a manufacturing defect. You must also check on who pays to dig into an engine to make a diagnosis. You also you must check on who pays and how much is paid for electrical system diagnosis. Then you have to get into when you are entitled to have your rental car paid for. Some companies wont pay for rentals until a diagnosis is made and then on a limited basis. The extended warranty area is a minefield, but if you get the right contract at the right price, all is well. I have fixed hundreds of cars for customers with extended warranty.

Can you afford to keep set aside money for a transmission replacement and a AC compressor replacement. If your AC compressor explodes internally a “by the book” repair can exceed $2000.00 easily. And that transmission replacement $4000.00 very easy. Both of these failures I describe are not rare in the least.

The contracts are not all bad although I don’t recommend them. If you absolutely, positively must buy a contract then buy a factory sponsored one for the specific type of car. With a new car I would not consider doing this; a used car maybe, all depending on the car, the contract wording, the price, etc.

The main thing is to be aware of deductibles and what is and is not covered. Many people are led to believe a contract covers everything from bumper to bumper no matter what fails. They assume maintenance and wear and tear items are covered and that is not the case.

A dealer or independent shop is not likely going to rely on a warranty company to pay the bill so they will perform the repair, have you pay, and then it’s up to you to collect from the insurer. However, a dealer should accept a factory policy for the brand of cars they sell.

The TV commercials are scams and even worse than the automobile ads are the ones appearing now for homeowner repair insurance. The latter is really going to be a debacle as some are going to find out.

Extended service agreements are nothing but fixed-term insurence contracts designed to offer protection against unexpected repairs during the period when they’re statistically unlikely to be needed and for the things that are statistically unlikely to need them. In short, it’s a really bad bet.

Put another way, if you have a problem, it’s statistically most likely to happen either while the original manufacturer’s warranty is still in effect or beyond the term that the extended warranty would have covered it. That’s the math.

There is no doubt that occasionally a consumer benefits from them. But your odds of doing so are terrible. The contracts are designed that way.