Consumer Publications List
Should You Buy a Service
When a Columbia
couple purchased a washing machine from a retail store, they also bought a
2-year service contract for $140. When the appliance malfunctioned, they called
the store–only to learn that their service contract was not with the store, but
with an out-of-state company that had since filed for bankruptcy.
A Lanham woman
paid for a service contract on her used car. When the power steering pump
failed, she was relieved because the service contract listed the pump as a
"covered part." To her dismay, the service contract company refused to pay for
the $900 repair. They said that even though the pump was a covered part, the
damage to it was caused by a failed gasket, which was a non-covered part, and
therefore none of the repair would be covered. The woman says the contract is
very confusing and does not provide the coverage she thought she had
When you buy an
appliance, computer or car, you may be asked if you want to buy a service
contract, also known as an extended warranty. The salesperson may urge you to
buy one for the peace of mind of knowing that future repairs will be
However, whether or
not they are a good deal for the consumer, salespeople may push service
contracts because they can be very profitable for retailers. That's because only
a small percentage of the consumers who buy service contracts use them, and
retailers can charge consumers much more for service contracts than it costs
them to provide the contracts.
contracts may be worthwhile, but as some consumers have discovered, others can
be a waste of money, either because you won't need to use it or because you
can't get the service contract to pay for repairs you thought were covered.
Following are some things you should consider before buying a service contract:
How does your
regular warranty coverage compare with the service contract? Make sure any
extended warranty coverage begins when your regular warranty ends, so you're not
wasting money on duplicate coverage.
Exactly what is
included–and not included–in the service contract? What parts, labor and
maintenance are covered? If specific items are not mentioned, assume they're not
covered. Find out whether repairs resulting from misuse, wear and tear, or
unsatisfactory maintenance are covered, and what these terms mean. Don't rely on
what the salesperson says. Ask to see the actual service contract and read
Is the item
likely to need repairs? In its October 2001 issue, Consumer Reports
magazine reported that only a small percentage of many common appliances and
home electronics items needed repairs within the first three years. For example,
only 6 percent of VCRs, 7 percent of 25-inch television sets and 7 percent of
clothes dryers needed repairs. (Desktop PCs, however, had a higher rate of
repairs–39 percent of them needed a repair within three years.) It also said
that in many cases the cost of a service contract was more than the cost of the
repairs that were needed. Buying merchandise with a good performance record is
your best insurance against getting a lemon. Check product repair histories in
publications such as Consumer Reports.
expenses must you pay when the item needs service? Does the service contract
require you to pay a charge, such as a deductible, each time service is needed?
Who pays shipping costs?
How and where
can you get service? Does the service contract include in-home service? Are
you required to bring the item to a specific dealer for repair? If you relocate
to another area, will service be readily available?
Who backs the
service contract? Is it the business from which you are buying the item
itself, or another company? When some consumers have tried to use their service
contracts, they've found that the third-party company that issued the contract
has gone out of business and cannot repay claims. Ask if there is any insurance
underwriting the policy, or whether the store or dealer you are buying from
would honor the policy if the other company went out of business.
Can you opt to
buy the service contract in a year or two? You may want to wait until you've
owned the item for a while, and until your manufacturer's warranty expires,
before considering a service contract. Your salesperson may tell you a policy
can be bought only when you purchase the appliance. Maybe that store won't sell
you a policy later, but other repair shops and service companies
Is an extended
warranty available through your credit card company? Some credit card
companies offer extended warranties if you buy a product with their card. Check
with your card issuer for the terms and conditions.
In summary, don't
buy a service contract on the spur of the moment. Only buy one if you have found
out exactly what is and isn't covered under the contract, and how reliable the
company is that backs the contract.
Advice for Used
for used cars are expensive–several hundred to over a thousand dollars.
Unfortunately, some consumers have found that their contracts wouldn't pay for
repairs they thought would be covered. Common problems:
Maryland Attorney General's Consumer Protection DivisionConsumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free
200 St. Paul Place, Baltimore, MD 21202
410-576-6300 / 1-888-743-0023 toll-free / TDD: 410-576-6372