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Some service contracts are transferable, and may thus increase the resale value of a vehicle. Many come with trip interruption reimbursement, towing and 24-hour road side. Some plans can also be financed, or have E-Z Pay Plans. Others offer a money-back guarantee.
What should you do?
You?ll get lots of advice about doing the research, comparing plans, and reading the fine print. This is all sound advice. But what about doing the math?
Let?s say a plan costs $2500 for 2 years or 100,000 miles, whichever comes first. To break even you?ll need a minimum of $1250 per year in covered repairs, excluding regular maintenance. Remember covered is the vital word here.
Another way to break it down is to anticipate having to pay $104.17 per month over the next two years in ?covered? repairs. Do you want to take that bet?
What could happen?
You could double your money or more in repair work. You could conceivably get a new engine and transmission (or used ones anyway). You could also easily spend $2500 for a service contract, and still have to pay another $2500 for repairs, which for a variety of reasons, were not covered under your plan. Now you?re out $5000.
Alternatively, you could keep the initial $2500. In many ways all an extended warranty does is prepay for repairs. You could stick the money in the bank and collect interest. Then you could withdraw the money for repairs as needed.
Another consideration that?s rarely discussed is the cause of the problems. Many car repairs problems are the result of wear and tear, neglected maintenance, physical damage, or acts of God?such as flood damage. None of this is covered. The gamble only covers failed components.
If the vehicle you?re driving does cost $2500 to $4500 in repairs due to outright failed components, is it a vehicle you even want to consider keeping? A vehicle that needs this kind of repair work due to mechanical, electrical, or computer failures may not be worth it. The $2500-$4500 would be better spent on an upgrade to a quality vehicle rather than insuring a lemon.
There?s no question that auto repair is expensive, and even quality cars break from time to time. But do they breakdown to the tune of $2500-$4500? That?s a hefty bet on a ?possibility.?
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