- Office of Consumer Affairs and Business Regulation
When buying a car from a Massachusetts dealer, consumers might hear about automotive service contracts and extended warranties. Both offer protections against certain problems that may arise, but there are differences between them.
An extended warranty is considered part of the purchase price of the car. A common type of extended warranty for used cars is the “Certified Pre-Owned” warranty, in which a manufacturer provides an additional protection for the vehicle. These certified pre-owned cars go through an inspection process and must fit certain criteria such as age and mileage. The criteria varies by manufacturer. When purchasing a car with an extended warranty, make sure that your documents clearly explain what is and isn’t covered.
Service contracts are optional purchases and always cost extra. They may be offered by manufacturers, dealers, and private companies. They also provide protections against problems that may arise, and the details of what is and isn’t covered should be clearly listed in the service contract. Consumers who finance their cars are often encouraged to add the cost of the service contract to the amount of the purchase that is being financed. Be aware that the larger the purchase, the greater the amount of finance charges there will be. Some car dealers partner with outside lenders such as banks and credit unions to provide the loans. Non-bank lenders such as “buy here pay here” dealerships must be properly licensed through the Division of Banks (http://www.mass.gov/ocabr/government/oca-agencies/dob-lp/consumermoneymatters/). Consider it a red flag if the dealer tells you that they’ll only sell you a car if you also buy a service contract from them.
If your desired motor vehicle purchase has an extended warranty or a service contract, read the fine print before signing the paperwork! Be sure the contact information for who you should contact in the event of a problem or concern is clearly stated.
Defects that impair the use or safety of used motor vehicles may be covered under the Massachusetts state lemon laws if the vehicle had less than 125,000 miles at the time of sale (http://www.mass.gov/ocabr/consumer-rights-and-resources/autos/lemon-laws/used-vehicle-warranty-law.html). Consumers who have extended warranties or service contracts are required to take reasonable steps to have their defects fixed under those protections before turning to the lemon laws.
More information about the differences between service contracts and extended warranties can be found at https://www.consumer.ftc.gov/blog/warranties-and-service-contracts-101.
