a consumer is filling out a service contract for his car

Service Contracts and Extended Warranties

Some offer good protection at a fair price. Others have restrictions and exclusions that make them almost worthless.

Service Contracts and Extended Warranties


Most car dealers sell service contracts for new and used vehicles. These contracts are also called extended warranties.

Are they worth the price?

Some service contracts offer good protection at a fair price. Others have conditions and exclusions that make them almost worthless. Since the cost of a service contract can be high, you need to find out what it covers before you buy.

If you are buying a new vehicle, it already comes with a warranty from the factory. The manufacturer will repair the car if it fails within the warranty period.

Unless the service contract covers more than the manufacturer’s warranty, its coverage should not start until after the manufacturer’s warranty has ended.

Used cars

Most used vehicles don’t come with a warranty, unless the seller gives you one.  If you buy an older used vehicle, a service contract may be the only protection you have. On newer used vehicles, the original factory warranty may still be in effect.

Before you buy, have your own mechanic inspect the car to find out what repairs might be needed in the near future.

Implied warranties

If you buy a service contract at the time of sale, or within 90 days of purchase, you have what is called an “implied warranty.”

This means that the dealer may still be responsible for repairs to your vehicle if it breaks down, even if you bought the car “as is.”

Before you buy a service contract

Before buying a service contract for a new or used vehicle, do the following:

  • Read the service contract carefully to find out what parts and systems of the vehicle are covered. Ask questions if there is anything you do not understand.
  • Check to see if the service contract requires you to perform regular scheduled maintenance on the vehicle and if the contract is void if you do not.
  • Check to see if the contract has high deductibles, which require you to pay certain costs of repairs before coverage begins. Some service contracts require you to pay $100 or more of each repair.
  • Check to see if it covers repairs caused by normal wear and tear. This is very important, because many service contracts only cover mechanical breakdowns. Most repairs are the result of wear and tear, not mechanical breakdown.

You do not have to buy a service contract in order to qualify for financing.

Contract conditions

Some service contracts require you to get permission from the company issuing the service contract before repairing your vehicle. They might refuse to pay if you don’t.

Other service contracts require you to go to the seller or to a specific shop for repairs. They might not let you use your own mechanic.

If you buy a service contract, be sure that a licensed insurance company backs it. If not, and the dealer or the company goes out of business, you may lose your coverage.

Your right to cancel

You have 60 days to cancel a service contract for a new vehicle without penalty. After 60 days, you can still cancel and receive a partial refund.

On a used vehicle, you can cancel a service contract within 30 days without penalty. After 30 days, you can cancel and receive a partial refund.

To cancel, write a letter to the dealer and the warranty company. If you are financing your vehicle, the price you paid for the service contract may be credited to your account balance.

Civil Codes 1794.4, 1794.41

County of Los Angeles Department of Consumer and Business Affairs. Last change: May 5, 2008

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http://dcba.qacp.lacounty.gov/