Other Vehicle Products

Other choices you may have when purchasing a new vehicle are Vehicle Service Contracts and GAP Protection (also see the Automotive Financing section for more information on GAP Protection). Other optional products may be offered to you at a dealership at the time of the vehicle sale. Examples are included in this section to add to your understanding of products that you may be asked t consider purchasing when you buy or lease a vehicle.

Vehicle Service Contracts
A product frequently offered for sale by the dealership at the time you purchase your vehicle is a Vehicle Service Contract. Vehicle service contracts are known by several names, including:

• Mechanical service agreements
• Extended service contracts
• Extended warranties

These products were developed in response to consumer needs for mechanical breakdown coverage and related services after the expiration of the manufacturer's warranty. A vehicle service contract pays the cost of covered vehicle repairs.

What is covered by a Vehicle Service Contract?
Vehicle service contract coverages may vary depending on who is providing the contract. All of the coverages should be clearly stated in the vehicle service contract and the contract or a copy should be made available for your review at the time of the sale. Here are the major things to look for and compare when making a decision to buy a vehicle service contract:

Repair Services
Look for the level of coverage in terms of what components and parts of the vehicle are covered. Some vehicle service contracts limit coverage to major components or assemblies, such as the engine, transmission and drive train. Others provide more comprehensive coverage for virtually all mechanical, electrical and computer components.

Time & Mileage
Vehicle service and maintenance contracts cover a specific amount of time and mileage. Generally, a customer will be able to select from a number of time and mileage options. The time is referred to in months or years. The contract will be in effect until either time or mileage is reached. Look for a plan that best meets your personal needs.

Deductible
Some contracts offer a choice of deductibles. The deductible may be zero ($0), meaning that nothing is owed on a covered repair, or higher, such as $200, for the out-of-pocket amount paid by the customer. The deductible is the amount you are responsible for paying and may apply per individual component repaired or per repair visit.

Rental
Many vehicle service contracts offer rental or alternate transportation reimbursement. These benefits may vary depending on who provides the vehicle service contract. The contract will state whether there is a qualifying repair time, for example a number of hours of repair work or keeping the vehicle for repairs overnight. Also, if there is a limit on the reimbursement in terms of the number of days, dollars per day and/or total dollars paid, it will be stated in the contract. Finally, check to see if the rental benefits can be extended due to a delay in repairs, such as a delay in getting parts.

Roadside Assistance
Like rental benefits, roadside assistance coverages may also vary depending on the provider. Some may simply reimburse for towing the disabled vehicle. Others may provide additional benefits, including emergency lock-out service, fuel service, battery jump-start, flat tire changes, toll-free roadside assistance phone line.

Who should consider buying a vehicle service contract?
If it is likely that you'll own or lease your vehicle beyond the manufacturer's warranty and if you want to avoid unexpected repair costs and the difficulty of being without your vehicle, you may want to consider buying a vehicle service contract. With the technology used in today's cars, repair costs have risen and will probably continue to do so. One major out-of-warranty repair can exceed the cost of buying a vehicle service contract. Purchasing a vehicle service contract can minimize or even eliminate out-of-pocket expenses for covered repairs. Vehicle service contracts provide customers with financial security against unanticipated vehicle repair expenses. Vehicle service contracts can reduce the hassle and inconvenience of a breakdown or repair by providing alternate transportation or rental and roadside assistance or towing. In addition the repair experience can be made more convenient by working with a quality repairer that the service contract provider already has arrangements with.

Is the company offering the service contract important?
Yes, while an auto dealership is selling you the vehicle service contract, they may or may not be the company that is offering, or that is obligated to you, to perform the promises made in the service contract. We have been referring to that company that is offering or obligated as the vehicle service contract provider. A vehicle service contract is a promise by the provider to pay, in the future, for covered repairs and services. That contract is only as good as the provider that backs it. Most vehicle service contract providers will also have a company that administers the vehicle service contract plan, including handling repair claims, and an insurance company that backs the vehicle service contracts in the event the provider goes out of business or otherwise does not pay its claims. It is equally important to know who administers and insures the vehicle service contract program. This information should also be clearly stated on the vehicle service contract.

What other questions should I ask when I am considering buying a vehicle service contract?

Ask what the cancellation policy is. Most vehicle service contracts offer a "free look" for as long as 60 days that allows the purchaser to cancel the contract and get a full refund, as long as no repair claim has been made. After that free look period, the vehicle service contract should allow cancellation on a pro-rata basis (based on the percentage of time or mileage used). Some vehicle service contract providers will add on a cancellation fee and some vehicle service contracts are not cancelable. Also, find out if the vehicle service contract can be transferred when you sell your vehicle.

Ask if there are any exceptions from coverage or conditions for obtaining repairs. As important as what is covered is the list of things that are not covered. Typically, maintenance items, such as tires, belts and hoses are excluded. Also, find out if you have to produce proof that you had scheduled maintenance performed or if there are any conditions that you must meet prior to having repairs made, such as getting prior approval of the repairs.

Ask if wear and tear is covered. Many vehicle service contracts limit coverage to when a defect in material or workmanship causes a mechanical failure. However, components are frequently subject to failure due to wear and tear.

Ask if you will be charged just one deductible for each repair visit.. Some vehicle service contract programs charge a deductible for each component that needs repair, even if it is the same repair visit.

Find out where you can have repairs made. Do you have to take your vehicle back to the dealership that sold the vehicle service contract to you or can you take the vehicle to any dealership that sells that particular make vehicle? Are there any other restrictions regarding where authorized repairs can be made, and if so are the repair locations convenient and reliable?

Ask if you have to pay for repairs and then be reimbursed. In many cases you can simply pay your deductible and the repair facility will charge the vehicle service contract company.

Find out if the authorized repair facility can immediately begin repairs or if they have to wait to see if your repair is covered. If the repairer has to wait, ask how long it takes to get confirmation of coverage.

GAP

GAP is an option that you frequently will be offered at an auto dealership. The purpose of GAP is to ensure that the borrower is fully protected in the event of a total loss. It covers the borrower's responsibility for the possible "gap" amount between the net balance of the outstanding retail finance contract and the actual cash value of a vehicle that is declared a total loss due to, for example a crash, fire or theft.

When your automobile insurance company, in this case we will refer to that company as the primary insurer, settles the total loss, it will determine the actual cash value of the vehicle at the time of the loss. The actual cash value is the market value of the vehicle at that point in time. That actual cash value is the most the primary insurer will usually pay out for a total loss, even if the amount owed to the lender is more. The amount still owed to the lender, or net balance, is the amount required to pay off lender, but usually excludes any past due payments, late fees, interest penalties or items financed that can be cancelled for a refund, such as a vehicle service contract.

This difference between the actual cash value and the net balance, or GAP, occurs when the value of the vehicle depreciates or declines faster than the amount of the loan is reduced by your payments. A GAP frequently exists during the early portion of the loan term, particularly if the amount financed is near or in excess of the manufacturer's suggested retail price (MSRP) of the vehicle.

Who should consider purchasing GAP?
If you are concerned that if you have a total loss, where the primary insurer's payment amount will not cover the amount you owe and you may not have enough assets on your own to pay that gap amount to the lender, you should consider the purchase of GAP. Remember, the GAP is likely to occur if you finance an amount close to or exceeding the MSRP, which frequently happens when a low or no down payment is made or when the amount you owe on your trade-in is included in or "rolled over" into your new finance contract.

An Example of How GAP Works
This example is for illustration only and could vary depending on the specific GAP contract and on state laws or regulations.

If the GAP contract does not pay/waive the primary insurance company deductible,
GAP payment = $3,000
Customer pays = $1,000 (deductible amount)

If the GAP contract does pay/waive the primary insurance company deductible,
GAP payment = $4,000
Customer pays = $ 0

* There are two items related to this example that are important to note. First, the Actual Cash Value and Net Balance needed to pay off the loan are determined as of the time of the loss. If it takes, for example, two months to settle with the Primary Insurance Company, the loan continues to accrue interest charges and regular scheduled payments would continue to be due while the settlement is being negotiated. Second and as mentioned earlier, the Net Balance doesn't include any past due payments, late fees or interest penalties.

Is there anything else I should ask when I consider the purchase of GAP?
Yes, as you can see from the previous example, it is important to know whether the GAP product you are considering purchasing pays for or waives the deductible you have on your primary insurance policy. This would be particularly important if you have a high deductible.

Also, as with vehicle service contracts, there may be an insurance company backing the GAP program. In some states, the GAP contract may be an insurance policy issued directly by an insurance company. In either case, it is important to know who the insurance company is and that the insurance company is financially sound, because the GAP contract is a promise to pay sometime in the future, frequently in the distant future.

Finally, be sure to understand the term, usually stated in months or years, that the GAP contract covers. Some GAP contract terms are the same as the term of the loan. Others may be for a shorter period, such as 24 or 36 months. Consider what term works best for you, with the knowledge that if you have a longer term loan, for example 72 months, a shorter term GAP product may expire while you still have a "gap" amount between the net balance of the outstanding retail finance contract and the actual cash value of your vehicle.

Other Dealership Finance & Insurance Products
When you are finalizing the purchase of your vehicle at the auto dealership there may be other items that you may want to purchase or that you may be offered. Two of the major products in this category have already been described, the Vehicle Service Contract and GAP protection. There are several others and new products are developed fairly regularly. Here are a few more examples of these types of products:

Vehicle Maintenance Contracts
Vehicle maintenance contracts may cover basic maintenance during the warranty period. A maintenance contract is limited to known, scheduled maintenance expense such as oil and filter changes, lubrication and tire rotations.

Lease Excess Wear & Tear Protection
This is a product that offers protection from the financial burden of paying for covered excess wear charges for damage on a vehicle at lease-end. It may waive, up to a specified amount, excess wear charges on certain items on the vehicle, such as exterior surfaces, tires & wheels, glass, upholstery & interior, bumpers or missing equipment or broken parts. There may or may not be a deductible for this product. It does not cover damage that would be covered by your automobile insurance policy's collision and comprehensive coverage.

Tire and Wheel Protection
Tire and wheel protection provides benefits that defray the cost of unexpected expenses of covered road hazards that damage or destroy tires and wheels. Covered road hazards may include things such as a tire replacement needed because of a puncture, curb damage or a road hazard like a pot hole. A tire and wheel protection product may also provide for roadside assistance when the vehicle is disabled due to covered road hazard damage.

Tips for making an informed decision about the purchase of these or similar products:
Know what the benefits of each product are. Ask questions until you are certain you understand what is covered and what is not.

Know the actual cost of the product, not just the amount that it may increase your monthly car payment. This way you will be better able to determine if the purchase of the product is a value to you. Also, many of these products offer a variety of terms, so make sure you match the length of coverage to how long you intend to own or lease the vehicle.

Find out who is provides the product, who provides the services or administers reimbursement of your expenses and how you go about requesting the reimbursement. Some providers offer programs that minimize out of pocket expenses and the hassle of submitting claim forms. Finally, ask if you have to return to a specific location or vendor for the service, repair or replacement.