How to get the best extended service contract at the best price on your new or used vehicle in 2023

Please note: This article is for informational purposes only and should not be considered financial advice. You assume full responsibility for making the decision on the whether to purchase an extended service contract or not, which one, and from who. I am just providing general guidance that may help you in your purchase process. I recommend you do your research and read all agreements completely before deciding.

The last few years during the pandemic, back end sales of warranties and other products in the finance office at dealerships have made record profits. Even prior to the pandemic, the back end often exceeded the front end on gross profit. A lot of that, though not all of it, comes from the sale of extended service contracts. The dealer knows you are most likely going to purchase that agreement when you are picking up your new, shiny car and are spending all that upfront money. Not to mention you can often finance it as part of your car purchase, which may or may not be a good idea, depending on the interest rate and terms.

Here is how I save a lot of people money if they are choosing to buy an extended service contract. This information really just applies to new cars and newer cars still under the manufacture’s full warranty period where you can still buy an extended service contract. Buying an extended service contract on a vehicle outside of the manufacturer’s warranty is more complicated, so I won’t be addressing that here. First, let me say that I don’t have knowledge of all service contracts in existence and I always encourage you to read your contract in its entirety, no matter how boring that may be. Most contracts have a refund period of 30 or 60 days if you find they are not going to provide the level of coverage you expected or need. Be sure to read what the cancellation policy is before signing on the line and be sure to comply with the terms to ensure you are not out additional money.

I am a bit old school and always recommend clients purchase service contracts backed by the manufacture of the vehicle they are purchasing. These are often competitive in price to the third-party contracts online or that the dealer may offer you, but they tend to have better coverage and backing from my experience. You also have the ability to price shop them with a vast network of dealers, both in person or now online in many cases if the vehicle is still under the full new car warranty period if it is used or when it is a brand-new vehicle.

Yes, service contracts are a high profit item and are negotiable. Dealers will show you brochures that they are selling you the contract at cost, but we all know in most cases, there is no way they will roll over and do that just because you are a nice person.

So if your vehicle is new or a newer vehicle still under the manufacturer’s warranty, I recommend shopping online with dealers in the manufacture’s franchise network for an OEM backed policy. Many manufacture’s allow dealers to quote these prices online to people all over the country, even if you don’t live near the selling dealer. Some manufactures, as a result of complaining dealers, have forbid dealers from quoting online for some makes. I believe you can still contact them and buy the contract remotely in many cases even still, but it will require more “finger work at the keyboard and maybe calling.” The difference between what you likely will be quoted by your local franchised dealer at delivery and what the online franchise dealers will quote can be thousands of dollars different. I have seen it happen several times with my own eyes and on vehicles I am purchasing myself. The coverage may be better and longer and for the same or better price in many cases. A lot of this is driven by the profit the dealer wants to make on you.

I recommend you price shop online before picking up your new vehicle or used vehicle still under the manufacturer’s warranty. Sometimes the local dealer’s finance manager will match the online price if you show them. Other times, they will tell you reasons why they can’t or why that price can’t be right. You need to confirm the details before entering their office though to make your best case. And realize you may have to leave without the warranty and buy it online afterwards. As long as the car is under new car warranty, you usually have until that expires to purchase an OEM backed extended service contract through a franchised dealer.

If you buy an OEM backed agreement online from a franchised dealer, most of them do these sales often and have people devoted to making the process easy and they make their sales with less overhead and greater volume. I can also assume they may make volume bonuses from the manufacture also to give them more price flexibility. The good part is that the manufacture backed service contracts can be used at any franchise dealer of your specific make across the country, regardless of where you bought the service agreement or car. So if you buy a Ford backed extended service contract from a dealer in Ohio, but you live in Florida, you can still have the service contract honored by a Chevrolet dealer in your city in Florida, all things being equal. This applies only to manufacture OEM backed service contracts though. Third party contracts may have different stipulations and some dealers outside of the selling dealer may not accept them.

So I think the lesson here is that it can be complicated dealing with service contracts and that is why many people just roll over and pay the dealer their asking price. However, as with buying the vehicle itself, it pays to do your homework. It also may make sense to hire a car buying advocate like myself to help guide you. Dealers are in the business to make a profit and that should be expected, but doing your due diligence or having someone help you with it can definitely save you money. If you need guidance, please check out my website at www.carguy4u.com for a list of available car buying and selling services.

Happy shopping!