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The Virtues of the Extended Service Contract

We love new trucks. They’re shiny, brimming with the latest and greatest gadgets, and they don’t smell like your gym bag. Yet. They also lack rust, ominous oil leaks, and battle scars like Texas pinstripes. Some of them even still have plastic film on various interior bits that we get to unwrap like kids on Christmas.

On the other hand, they’re expensive and take nasty depreciation hits early on. Just ask anyone who has tried to trade in a three-year-old Grand Cherokee, just out of warranty, in a weird color, two months after a new model was released. Occasionally, there’s a feature that’s no longer offered like if you’re completely in love with Power Stroke F250s but you’ll only take one with a manual transmission or maybe you just like the styling of the old one better.

Buying used vehicles can be scary, though. You could paw through online classifieds ads and hope that whatever you find hasn’t been previously driven by a deranged teenager with authority issues. If the thing found its way to the bottom of a pond, it would show up on the CarFax, right? Well, maybe.

The other side of the argument is that most modern vehicles can travel well over 100,000 miles, relatively trouble-free, assuming the previous owner had the oil changed occasionally and didn’t drive it into any tragically compromising situations. Still though, things can go wrong and when that happens out of the manufacturer’s new vehicle warranty (typically 36,000-50,000 miles depending on make, model, and year), it can be a righteous headache. Nothing says ‘awesome’ quite like a surprise $1500 repair bill the same week that the payment is due, three days after you get back from vacation.

Fortunately, you can have your proverbial used truck cake and eat it too, thanks to the availability of extended service contracts. These can be branded as extended warranties, certified used programs, and a host of other buzz words. For a fee, they effectively provide additional warranty coverage on the vehicle for an agreed upon period of time and/or mileage interval. Many of them will cover a rental while your truck is getting worked on and will even provide towing if you’re left stranded. If you decide to sell the truck before the contract is up, it can usually be transferred to the buyer for a nominal charge. Nothing spruces up a used car ad like the phrase ‘still under warranty’.

Since you’re effectively paying for the service on the vehicle up front, the contract has the potential to save you thousands. If you’ve been following Doug DeMuro on Twitter or Jalopnik, you’d likely have read that his $3899 extended warranty has paid out over $7500 in claims and still has almost three years left on the term. Granted, the vehicle in question is a Range Rover so both of those numbers are slightly more substantial than you can expect for a standard pickup truck. For some perspective, this author once had a $1300 service contract cover $5000 in repairs on a used Saab by the time it expired.

Extended service contracts sometimes get a bad wrap because they are frequently pitched at the back end of the car deal along with the questionable anti-theft devices and snake oil paint sealants. Actual cost of a service contracts will vary by model, region, and provider. Dealerships have some room for negotiation on the price so it’s a good idea to get a few quotes from competing dealers before finalizing anything so that you have an idea what the going rate might be for the contract. Also remember that dealers will often speak in terms of monthly payment so make sure that you see an itemized listing of everything involved with the price of the vehicle before signing.

Of course, we could argue ‘till the cows come home on whether new or used vehicles are more practical and that decision is going to come down to individual needs. An extended warranty can often sweeten the deal towards the used route though. Just make sure you plan on having the vehicle long enough to break since you want to be able to get your value out of the contract. On a sidebar, if you already have a new-ish rig that you’d like to hang onto for a while, many companies will sell you an extended service contract if the vehicle in question is still covered under the original factory warranty.

 

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