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It’s easy to be tricked into an auto warranty. Keep in mind that these are really not warranties but extended service contracts. It’s often better to avoid buying extended service contracts. In some limited instances, extended auto service contracts may be worth purchasing if:
(1) You are buying a used car that is otherwise “as is”
(2) The service contract does not specifically limit engine, transmission or other high cost repairs
(3) You’ve done your research and the company offering the contract has a solid reputation online and with the Better Business Bureau
Also, make sure you’re not buying duplicate coverage. For example, if the manufacturer’s auto warranty is still in effect, some service contracts won’t be valid. Don’t waste your money on a contract that won’t apply for some time in the future. It’s an old trick to add on service contracts to increase a dealer’s profits so be especially careful if you’re offered an extended service contract on a new car that already has a manufacturer’s warranty.
Pay close attention to the warranty’s terms. It may require you to obtain pre-authorization for any repairs and may require you to go to specific service centers. Be sure those are terms you can live with. And while you can normally cancel these contracts, double check the cancellation terms.
Finally, watch out for telemarketers selling auto service contracts. Today, the Federal Trade Commission announced $4 million in refunds for one such scam – https://www.ftc.gov/news-events/press-releases/2016/07/ftc-providing-4-million-full-refunds-people-tricked-buying-bogus.
Don’t be pressured into auto add-ons – take your time, shop around, and know what you’re getting. Even if the dealer says otherwise, that car will likely be on the lot tomorrow.