To Buy or Not to Buy: Understanding Service Contracts When Purchasing a New Car

Introduction: Purchasing a new car is an exciting experience, but it can also come with its fair share of decisions and considerations. One such decision often presented to buyers is whether or not to invest in a service contract offered by the dealer. As a California lemon law lawyer, I frequently encounter clients grappling with this question. In this article, we’ll explore the ins and outs of service contracts, weigh the pros and cons, and ultimately provide insight into whether buying one is worth it.

Understanding Service Contracts: Before diving into whether you should buy a service contract, it’s essential to understand what it entails. A service contract, also known as an extended warranty, is essentially a promise to cover certain repairs or services beyond the manufacturer’s warranty period. These contracts vary widely in coverage, duration, and cost, so it’s crucial to carefully review the terms before making a decision.

Pros of Buying a Service Contract:

1. Extended Coverage: One of the primary advantages of purchasing a service contract is the extended coverage it provides. While manufacturer warranties typically last for a limited time or mileage, a service contract can extend coverage for several years or additional miles, providing peace of mind for the buyer.

2. Budgeting for Repairs: With a service contract, buyers can budget for potential repairs more effectively. Knowing that certain repairs are covered under the contract can help alleviate the financial burden of unexpected maintenance costs down the road.

3. Convenience: Service contracts often come with added conveniences such as roadside assistance, towing services, and rental car reimbursement, making it easier to deal with unexpected vehicle issues.

Cons of Buying a Service Contract:

1. Cost: Service contracts can be expensive, adding a significant upfront cost to the purchase of the vehicle. In some cases, the cost of the contract may outweigh the potential savings from covered repairs, especially if the vehicle proves to be reliable.

2. Potentially Not Recoverable Under Lemon Law:  In Lemon Law cases, some car manufacturers like to argue that a service contract is not recoverable under the Lemon Law because they consider it an “after-market” accessory which is expressly excluded from a consumer’s recovery.  Service contracts are typically purchased through the dealership and not the manufacturer so the manufacturer will argue that it is not their responsibility to reimburse this cost.  While our firm believes this expense is recoverable, manufacturers typically will delay settlement arguing over this expense. 

3. Overlapping Coverage: Some service contracts may duplicate coverage already provided by the manufacturer’s warranty or by consumer protection laws such as California’s lemon law. In such cases, purchasing a service contract may be unnecessary and a waste of money.

4. Fine Print and Exclusions: Like any contract, service contracts often contain fine print and exclusions that limit coverage. Buyers should carefully review the terms and conditions to ensure they understand what is covered and what is not.

Considerations for California Consumers: In California, consumers are protected by robust lemon laws that provide recourse in the event of a defective vehicle. If your new car turns out to be a lemon, you may be entitled to a refund or replacement vehicle under the California Lemon Law. Given these protections, some buyers may find that a service contract is unnecessary, as they already have legal remedies available to them.

However, it’s essential to note that lemon law protections may not cover all types of defects or issues, and pursuing a lemon law claim can be a time-consuming and complex process. As such, some consumers may still opt to purchase a service contract for added peace of mind and convenience.

Ultimately, the decision to buy a service contract when purchasing a new car depends on individual circumstances, preferences, and risk tolerance. Before making a decision, buyers should carefully consider the cost of the contract, the coverage provided, and their existing protections under California law.

Conclusion: When faced with the decision of whether to buy a service contract when purchasing a new car, California consumers should weigh the pros and cons carefully. While service contracts offer extended coverage and peace of mind, they can also be costly and may duplicate existing protections under the law. By understanding the terms of the contract and considering their individual circumstances, buyers can make an informed decision that best suits their needs and preferences. As always, consulting with a knowledgeable California lemon law lawyer can provide valuable guidance in navigating this decision-making process.

Lemon Law Lawyers Group

32605 Temecula Parkway
Suite 101, Temecula, CA 92592

Phone: (951) 324-4111
Fax: (951) 602-6520
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Disclaimer

The founder and owner of Lemon Law Lawyers Group, Inc. is Erika N. Kavicky, State Bar No. 225052. This website does not create an attorney client relationship nor does it provide legal advice. Any results posted on the website are not guarantees, warranties, or predictions on how your case may turn out. This website is intended for legal advertisement as allowable by the California State Bar.