Everything You Need to Know About Vehicle Service Contracts (VSCs)
Vehicle Service Contracts cover all or most of the cost of necessary repairs. A good VSC can be a great investment to save you from unexpected car repair bills.
VSCs have a bad reputation, for good reason: they’re usually sold the wrong way, at massively inflated prices.
At Outside Financial, we have a better way
We’ll show you the best way to buy a VSC.
Getting started: What is a VSC?
VSCs, sometimes mistakenly referred to as extended warranties, are like health insurance for your vehicle. You pay a small amount each month, and the VSC company will cover all or most of the cost of necessary repairs. Our bottom line: VSCs can be valuable when they’re bought at the right price.
Why should you buy a VSC?
Here are our top three reasons to buy a good vehicle service contract:
To avoid the risk of costly repairs. According to a survey by AAA , 64 million American drivers would not be able to pay for an unexpected $500 repair without going into debt. Certain repairs, like a powertrain issue, can run over $2000. Small monthly payments can protect you when your car’s original warranty does not.
To avoid the risk of not being an auto repair expert. Have no idea whether that part really needs to be changed, and whether it should really cost $750? Your VSC provider knows the answers to both of those questions, so you’re covered.
To repair where you choose – at a dealer or any other of 1400 ASE certified service shops. Consumer Reports found that independent repair shops consistently outscore dealer service departments on satisfaction, quality and speed. But many VSCs sold at dealerships will steer you back to only one place – the dealer who sold you the VSC! We like 1400 choices more than one.
Who should buy a VSC?
It’s smart to consider a VSC if you intend to own your new car beyond the manufacturer warranty period and mileage limits, or if you buy a used car. That’s most of us. The average car loan term is now over 5 years, and the average car on the road is over 11 years old. Your car is almost certain to outlast its original warranty.
The real problem with VSCs
VSCs are often sold the wrong way. It’s usually not a good idea to buy your VSC from the person who sells you a car – there’s too much pressure and too few options. And that’s not just us talking. The National Association of Insurance Commissioners conducted a study of service contracts, and their #1 recommendation was “banning the sale of extended warranties by retailers at the point of sale.”1
Auto add-ons add up
VSCs are often sold at the wrong price. At the same dealership, the same VSC might be sold for $1,200 or for $4,500, according to the National Consumer Law Center. The title of their study says a lot: “Auto Add-Ons Add Up: How Dealer Discretion Drives Excessive, Arbitrary and Discriminatory Pricing.”
How VSCs work, and what they cover
When you have a breakdown, you call your VSC provider and let them know. You choose a convenient certified repair shop. Once your VSC provider approves the repairs, your mechanic will do the work, and your VSC provider will pay the mechanic. And you get back on the road, with minimal hassle.
You have responsibilities too. You need to make sure you contact your provider to ensure your repair is covered. You may also need to pay a small deductible. Also, you will need to commit to a sensible maintenance routine.
What will my VSC cover? Typically, your VSC will pay for the repair of the following items, many of which can cost thousands of dollars: engine, transmission, driving axles, suspension, steering, and systems for air conditioning, fuel, cooling, electrical and seals, gaskets, and electronics.
Your VSC won’t cover consumables like windshield wipers, shock absorbers, or batteries.
Keep in mind that you need to read and understand your individual policy. The typical coverages and exclusions discussed above are just that – typical. Rest assured that any policy we sell will be clear, fair, and transparent and fully vetted by our legal and financial experts.
Whether or not you buy your VSC from Outside, just remember:
Don’t buy under pressure at the dealership – dealers will often sell you on the convenience of rolling your VSC payment into your loan, which does make life easier. But if you don’t understand your VSC policy, you could be buying coverage for things your factory warranty already covers or paying a massively inflated price for the same coverage you could buy from another source.
You have options - not all VSCs are the same, but you probably won’t have time to compare in the dealer’s Back Office. There’s no need to rush, although you will find that the cost to buy a VSC increases as your vehicle ages.
Buy a comprehensive policy – fuller coverage usually costs just a little more, and can often include coverage for mechanical breakdowns and certain wear and tear, as well as valuable extras like towing, travel expenses, and rental car reimbursement.
VSCs are cheaper for more reliable cars. Honda, Toyota, Subaru are good examples.
Stay flexible – There is no reason to buy a VSC at a dealership that locks you into servicing at a particular location. The great thing about cars is that they move—which means you might need repairs while you’re on a roadtrip or after you’ve moved away from where you bought your car.
This page describes Vehicle Service Contracts in general terms. It is not meant to be a comprehensive or binding description of any particular policy. In order to answer questions about your policy, you will need to carefully review your policy terms and conditions. Purchase of a VSC is always optional and is never a condition of financing for any lender.
Read More Like This…
