Mortgage payment: $1,000
Utility bills: $300
Health insurance: $100
New engine: $2,500?

For many credit union members, “saving” for unexpected and incidental expenses – such as major automobile repairs – is not the first item listed on the budget after the regular monthly bills.  

But the fact is, if a member is planning on purchasing a used vehicle and driving it for several years, expensive parts will need to be tightened, cleaned, or replaced, which could result in a significant financial burden. For members who are not able to save for such expenditures, a vehicle service contract can be a terrific investment.

A vehicle service contract that is purchased at the time of sale serves as a supplement to any remaining manufacturer’s warranty coverage.  The contract can include a wide range of repairs and maintenance protection – from bumper to bumper to just the engine.  After a member purchases a service contract, the contract provider – be it a dealership, independent insurance company, or other third party – is then responsible for the cost of all future covered repairs.  

Many dealerships include the option to purchase a vehicle service contract at the time of sale or for a period of time afterward.  Third-party companies also offer contracts and can be found via the Internet.  

It’s important for members to purchase these contracts through a reputable company, because the contract is only as good as the company that backs it.  For instance, Enterprise Car Sales offers service contracts on every used vehicle for customers’ added protection and peace of mind, including extensive mechanical coverage, roadside assistance and alternate transportation.  These service contracts are administered and backed by the Insurance People of General Motors, which gives members nationwide coverage.  

There are several types of contracts, so it is important that members research what’s best for their particular vehicle and budget.  Some offer a choice of miles covered by the agreement, and a period of time – such as 30,000 miles/30 months.  Some contracts cover engine components only, others offer bumper-to-bumper coverage.  They can also come with services like comprehensive towing, battery jump-start, tire change, and fuel delivery.  

Many vehicle service contracts also offer deductibles, which allow members to have a reduced up-front charge and pay a deductible should they need to take their automobile to be serviced.  

So who should get a vehicle service contract?  To start, if a member is planning on keeping their vehicle for several years or drives excessive miles, it may be a good idea.  One major out-of-warranty repair can easily exceed the cost of buying a vehicle service contract. Individuals on tight budgets also might find value in a vehicle services contract.  Owners without coverage may put off needed repairs until they can afford the cost of the repair.  This delay may result in additional damage to the vehicle and can create potentially unsafe driving conditions.  

When shopping for a service contract, the following considerations will help members:

• Limits of Coverage – The extent of the repair services covered.  This varies from engines and transmission to bumper-to-bumper to lock-outs and flat tire changes.  Some contracts list what is included in the coverage and others list what is not covered. Typically, contracts that list what is not covered are more comprehensive than a policy that lists what is covered.
  
  
• Deductible – This can vary in price according to the particular contract.  It’s important for members to note whether the deductible is per visit or per item being repaired.
  
  
• Rental – Many service contracts offer rental vehicle reimbursement.  Plans vary as to when a car is provided, number of days, cost of vehicle per day, and extensions based on a parts delay.
  
  
• Time and Mileage – It is important to understand when the coverage begins. Some contracts start at zero miles and others start at the mileage at the time of sale. Members need to pay close attention to mileage and term options when purchasing a used vehicle.
  
  
• Cancellation Policy – All vehicle service contracts should have a cancellation policy or free look period. After the free look period expires the contract should still include a cancellation option with pro-rata refund.
  
     
• Wear and Tear – Some contracts only cover failure due to defect, while others will cover wear and tear costs such as worn fan belts and spark plugs.
  
  
• Repair Shops – Some contracts specify where the vehicle can be taken for repairs. Members need to make sure the specified mechanic is reliable and convenient.

Article courtesy of Enterprise Car Sales