Office of Maryland Attorney General J. Joseph Curran, Jr.
|November 2, 2001
||Media Inquiries: Sean Caine 410-576-6357
SERVICE CONTRACTS NOT ALWAYS A GOOD
DEAL, ATTORNEY GENERAL ADVISES
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 covered. In this month's issue of his Consumer's
Edge newsletter, Attorney J. Joseph Curran, Jr. advises consumers
to check out service contracts carefully before buying.
"Salespeople push service contracts because they can be very profitable
for retailers, but they can be a waste of money, either because you won't
need to use them or because you can't get the service contract to pay
for repairs you thought were covered," said Curran.
Following are some things consumers should consider before buying a
- 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?
If specific repairs or components 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 it.
- 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. 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."
- What other expenses must you pay when the item needs servicing?
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
- 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.
- 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.
Curran offered a special caution for consumers considering buying a
service contract on a used car: Many service contracts cover only mechanical
breakdown–or defect–of parts, not corrosion or wear and tear. Yet many,
if not most, repairs on older cars are due to corrosion or wear and tear
rather than a manufacturing defect.
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.