Choosing the right one offers peace of mind for borrowers with damaged credit during an auto loan but these buyers need to be aware of the scams associated with auto service contracts
What we know
Consumers with problem credit should know what could happen before they respond to a phone call or email from what might turn out to be a fraudulent company attempting to sell them a new or used car service contract.
Here at Auto Credit Express we’re familiar with what goes on in the aftermarket because we’ve spent over two decades helping car shoppers with bad credit looking for online auto loans by matching them up with those car dealers that can offer them their best chances for auto loan approvals.
Vehicle extended service plans
In most cases, once borrowers get approved we recommend that they consider buying a service contract – sometimes mistakenly referred to as an extended warranty – covering the entire loan term.
From our point of view, there are a number of reasons for this, especially if it’s a used car. The most important one, especially for borrowers on a tight budget, is that it can help avoid unplanned expensive car repairs – one reason subprime auto loans have higher repossession rates.
We also encourage buyers to purchase it from the selling dealer. Here’s why:
Service contract scams
As soon as most buyers take delivery (typically it makes no difference even if the vehicle is covered by a new car warranty) chances are they’ll be swamped with letters, emails and even phone calls from companies selling some type of vehicle service contract.
In most cases these companies get their 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.
It’s evident that some will go to great lengths to sign customers up because during some of these phone sales pitches car buyers have been told that:
• Their warranty is getting ready to expire (not always true)
• They’re being sold 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).
• The caller is 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)
What consumers can do
Consumers contacted by one of these companies should request a name, address and phone number. Then, before committing to anything, they should contact the local Better Business Bureau and the state’s Consumer Affairs department to verify that the company is licensed to do business in their state.
Consumers contacted at a number registered with the Federal Do Not Call List shouldn’t have been contacted by phone in the first place.
Buying from a dealer
There are a number of advantages to buying a vehicle extended service plan from the selling dealer. Consumers purchasing one from the selling dealer means will know where to go or who to talk to if they have any problems. In addition, licensed car dealers also fall under a state’s consumer protection laws (not always the case with out-of-state companies).
Another tip: shop around beforehand to compare various service contracts for pricing and coverage. Just like the price of a car, the cost of a service contract is usually negotiable.
The Bottom Line
In most cases borrowers should avoid purchasing a service contract sight unseen and especially from an out of state telemarketer – after all, most consumers would probably not buy a car this way for the very same reason. Secondly, by knowing where and from whom it was purchased, if a problem does arise later on it can be taken care of much more easily.
One final tip: Auto Credit Express matches people that have experienced credit difficulties with new car dealers that can offer them their best opportunities for approved auto loans.
So if you’re ready to reestablish your credit, you can begin now by filling out our online auto loan application.