Watch Out! Ten Things to Consider When Purchasing an Extended Auto Warranty

Whenever you are making a large purchase you need to watch out for things that can go wrong. Unfortunately, the extended auto warranty business has more than its share of liars and scammers. Here are ten tips to keep in mind when doing business with anyone trying to sell you protection for your vehicle.

1. Never give out personal information. This applies to just about anyone who cold calls you on the phone. Never, ever, ever give out your bank account numbers, credit card information or Social Security numbers. Even if they claim to be from your vehicle manufacturer or the dealer where you bought your car and even if they claim that your auto warranty is expiring and you will be left without coverage—do NOT give out personal information. Get all of their information and call them back. And, if they cannot tell you your vehicle information, they are not legitimate. Better yet, if you are interested in getting an extended auto warranty find a reputable company online and contact them. One of the reasons that we recommend CARCHEX is because they do not cold call people. They only contact potential customers who have first requested information.

2. Watch out for letters or postcards that claim to come from your automobile manufacturer or dealer. These mailings may look official but more often than not, they aren't. In fact, many of these mailings fall under the category of deceptive advertising. They are misleading you into thinking that they are somehow affiliated with an automobile manufacturer.

3. Read the contract! Before you sign anything insist that the company send you the complete terms and conditions of the agreement in writing before you sign or pay for anything. In fact, you should only deal with companies who practice full transparency, who will not only show you your contract but will go through it with you and explain it to you.

4. Understand the contract! If you do not fully understand the terms and coverage laid out in a contract, do not sign it. The first thing to understand is that you are actually buying a service contract. According to the Federal Trade Commission, "A warranty comes with the original price of the car, whereas a service contract costs extra. It is mainly this separate and additional cost that distinguishes a service contract from a warranty." Before you pay or sign, make sure that you fully understand what will be covered, what will not be covered, and under what circumstances. Coverage can vary widely. You need to understand, and then make certain, that you are getting the best coverage for the price.

5. Shop around. Extended auto warranties, or service contracts, aren't cheap. And, with any substantial purchase, you should shop around. You probably compare reviews and prices when you are buying a TV, or other electronic equipment, so why wouldn't you take the same care before buying protection for your car? This is another important reason why we recommend CARCHEX: they shop around for you.

6. Broker vs. administrators. The company that sells you your service contract may not be the company that decides whether or not your claims are covered. The sales company is usually a selling agent or broker. The administrator is the company that will decide what and how much they will cover. There are pros and cons to each. Please read our in-depth article about the differences before you purchase an extended auto warranty.

7. Do your due diligence. Before you work with any company do a search on the Better Business Bureau ( http://www.bbb.org/us/Find-Business-Reviews/). When it comes to auto warranties, you really don't want to do business with any company that received lower than an A rating. You'll find that this substantially narrows the field but it's better to have fewer good choices than many bad ones. Another reason we recommend CARCHEX is their A+ rating by the BBB. If you still aren't satisfied, contact your local Attorney General Office and ask them if they have received any complaints against the company or if there are any lawsuits pending. Once you have chosen a seller, you will want to do another search for the administrator. However, a reputable sales company should only work with top of the line administrators. But, checking with the BBB, your Attorney General's Office and performing a quick search online are good habits to get into.

8. How low is too low? Legitimate extended auto warranties can cost thousands of dollars. If you are offered an auto warranty for a few hundred, be suspicious. Think about it: how can a company realistically cover anything that goes wrong with your car for a few hundred dollars? Think about how much you spend getting a basic oil change or your tires aligned and rotated? Now think about how much your last major repair cost? Start adding this up and you'll start to understand, yes, you are paying for the coverage but there is a good chance you will still come out ahead. And, if you pay nothing or very little, chances are, you'll get no coverage.

9 Seeing may not be believing. Just because a company is on TV does not mean they are legitimate. US Fidelis flooded the airwaves with commercials and found themselves involved in multiple lawsuits and declaring bankruptcy.

10. Do not call registry. If you are on the Do Not Call Registry, and have been for more than 30 days, and a telemarketer still calls you, they are breaking the law. You should report them at http://www.donotcall.gov. If they are breaking this law, who knows how many other laws they may be breaking? This goes for robo-calling as well. Remember all of those "your auto warranty is about to expire" calls everyone was getting just a few months ago? These are now illegal. Do not do business with any company that practices robo-calling.