Steering Clear of Used Car Service Contract Scamsby Steve Cypher on Wednesday, February 6th, 2013
New and used car buyers with damaged credit should be aware of the fact that they may receive calls or emails from fraudulent companies trying to sell them new and used car service contracts.
Here at Auto Credit Express we’re familiar with this practice because we’ve spent the last twenty years helping car shoppers with poor credit scores by matching them up with new car dealers for their best chances at car loan approvals.
In many cases when applicants qualify for the high risk car loans these dealers offer we recommend that they purchase a service contract – sometimes mistakenly called an extended warranty – that covers the entire loan term.
As far as we’re concerned, there are a number of reasons doing this makes sense, especially if the vehicle that’s being financed is a used car. The most important reason, especially if borrowers are on a tight budget, is that it may help them avoid unplanned expensive car repairs – one of the biggest reasons subprime auto loans have higher repossession rates.
At the same time, we also encourage these buyers to purchase the service contract from the selling dealer. Here’s why:
Used car service contract scams
As soon as you take delivery (and it typically makes no difference if your vehicle is currently covered by a new car warranty or used car service contract) chances are you’ll be swamped with letters, phone calls and even emails from companies hoping to sell you some kind of vehicle service contract. Many of them will go to great lengths to sign you up.
In most cases these companies get your information by purchasing lists of buyers that have recently taken delivery of a new or used car. This information is then added to email and mailing lists and, frequently, also turned over to telemarketers who start making calls.
During some of these phone sales pitches, car buyers have been told that:
• Their warranty is getting ready to expire (not always true)
• The company is selling an extended warranty (this is not true – service contracts do not “extend” a new car warranty and may even duplicate or overlap an existing warranty).
• They are being called from the selling dealer or manufacturer (when in fact they are being contacted by an outside company)
• The service contract is a “bumper to bumper” warranty just like a new car warranty (which it’s not)
• If they’re not completely satisfied they’ll get a full refund (in many cases, when customers have called back to cancel the policy and get a refund, they’re unable to reach anyone at the company)
What you can do
If you’re contacted by one of these companies, request a name, address and phone number. Then, before you commit to anything, contact the local Better Business Bureau and your state’s Consumer Affairs department to verify that the company is licensed to do business.
If you were contacted at a number registered with the Federal Do Not Call List, file a complaint because the company shouldn’t be calling you in the first place.
Why you should buy from a dealer
Buying a service contract from the selling dealer means that you’ll know where to go or who to talk to if you encounter any problems. Licensed car dealers also fall under your state’s consumer protection laws (this is not always the case with out-of-state companies).
One more tip: don’t be afraid to shop around and compare various service contracts for pricing and coverage. Just like the price of the car, the cost of service contracts is typically negotiable.
As we see it
In most cases you should avoid purchasing a service contract sight unseen and especially from an out of state telemarketer – after all, you probably didn’t buy your car from one for good reason. Secondly, by knowing where and from whom you bought it, chances are if you do have a problem you’ll be able to handle it much more easily.
Finally, we want you to know that Auto Credit Express matches applicants that have experienced car credit issues with dealers that can offer them their best opportunities for approved car loans.
So if you’re ready to establish your auto credit, you can begin now by filling out our online car loans application.