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Why you should avoid third-party auto warranties and vehicle service contracts

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Clark Howard Staff, Clark.com

Have you received an official looking letter in the mail saying your vehicle’s warranty is about to expire — and warning you could face thousands of dollars in repair costs if you don’t purchase a third-party extended warranty?

Here’s what’s going on…

RELATED: Best and worst auto insurance companies

Vehicle service contracts not all they’re cracked up to be

First things first, warranty is a misnomer in this case. What you’re really being peddled is called a “vehicle service contract” (VSC).

The difference between the two is more than just semantics. The Federal Trade Commission notes an extended warranty is included in the purchase price of a vehicle, while a vehicle service contract is not.

Furthermore, the FTC warns about high-pressure sales tactics — including requests for personal financial information and a down payment before any details of the contract are revealed — that are typically associated with the sale of VSCs.

Not to mention the businesses behind the VSCs often go bust and leave their customers high and dry when repair bills need to be paid, according to an FTC warning.

One member of Team Clark recently received a VSC pitch mailed to his home. We wanted to show you what it looks like so you know what you’re looking at if it arrives in your mailbox, too.

endurance warranty services

This particular seller of VSCs, Endurance Warranty Services (EWS), creates a sense of urgency by back-dating the letter by a month, saying they’ve tried to reach out to you multiple times and then giving you only a 72-hour deadline to call and get the coverage they’re selling.

On the reverse side of the letter, there’s a mock invoice that details a litany of fake car repairs that could potentially take a big bite out of your wallet.

repair examples 3

The VSC pitch scares you with a big total — $12,914.75 — for repairs that may never have happened to your vehicle and may never happen with proper maintenance.

Before buying any VSC, it’s wise to look at the exclusions and the terms of the contract. We found this sample contract on the EWS website. Buried in the small print, we found the following.

  • Most consumers must pay a standard $100 deductible before you get service.
  • If you can’t produce every receipt to show that you did the manufacturer’s recommended service on your vehicle, your coverage can be denied.
  • If you have a problem with the VSC provider, you have to go through a mandatory arbitration process that usually doesn’t work out in the consumer’s favor.

As always, the devil is in the details!

And here’s something else that’s strange…as the FTC noted, there’s no disclosure anywhere on either the sample contract or in the pitch letter about how much a policy actually costs. EWS is even opaque about that on the coverage page of their website.

So apparently the only way to get a quote is to call or request a quote online. But by handing over your phone number and email, you open yourself to the high-pressure sales tactics the FTC says are common in this industry.

Who should and shouldn’t buy a warranty?

Of course, there’s a larger issue here — and it’s about whether or not you should buy an extended warranty on any vehicle…period.

On that count, money expert Clark Howard’s advice can be boiled down to several key takeaways:

  • If you can afford the potential cost of car repairs, you should never buy an extended warranty.
  • If, however, you can’t afford the cost of potential repairs, you may want to consider buying the vehicle manufacturer’s warranty.
  • Never buy an extended auto warranty from a third party. If trouble happens, the manufacturer is probably going to be there to stand behind its warranty. A third-party company may not.

Another point Clark has always made is that if you stick to Consumer Reports’ annual recommended list of vehicles, which is published every April, you shouldn’t have to buy an extended warranty at all.

That’s because the magazine does the hard work of vetting out the bad cars you should avoid buying in the first place. So the odds are that their recommended vehicles won’t have severe problems over time, thus negating the need for an extended warranty in the first place.

Here are some other ways to avoid having to buy a third-party warranty

Get regularly scheduled maintenance done

It’s the stuff you’ve heard all your life: Get your oil changed regularly — for some vehicles that means every 3,000 miles and for others it may mean every 7,500 miles or more. Check and maintain proper tire pressure and have your tires rotated every 8,000 miles. Check your vehicle fluids regularly and top them off when necessary. Change your air filters regularly.

Taking these simple steps can prevent larger auto problems down the road!

Get free car repairs 

Technical service bulletins (TSBs) are bulletins issued by vehicle manufacturers to dealerships when they note a systemic problem with one of their vehicles. TSBs aren’t quite recalls, they’re more like production “oops” that are being acknowledged. Thousands of these TSBs are issued every year.

But here’s the thing about TSBs: The dealers will often fix them for free if the particular issue noted in a TSB impacts your vehicle.

You can see if there are any active TSBs for your vehicle by make, model and year at AutoSafety.org and at ALLDATAdiy.com.  Meanwhile, SaferCar.gov is another good resource to know about for TSBs.

More auto stories on Clark.com

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