Car repairs can cost a fortune, but buying a repair agreement can save you. How do you go about doing that? What types of contracts are there?
When you enter a repair agreement, the company is legally required to pay repairs. Each obligor (the legal term for the company in contract) has different ways of covering your costs. Even though there are many different names for repair agreements (auto service contracts, extended warranties, vehicle service contracts, etc.), what is most important is that you know what kind of obligor you are dealing with so that you fully understand your repair agreement.
There are 4 main categories of repair agreements, each with a different kind of obligor:
· Vehicle Service Contract Provider (VSCP) Service Contracts
· Dealer Obligor Service Contracts
· Product Warranties
· Mechanical Breakdown Insurance (MBI)
Let’s break them down, so you understand what each means for you.
The most common service contracts are Vehicle Service Contract Provider (VSCP) contracts. This type of obligor holds a special VSCP license issued by the state to sell service contracts. It may be under the same ownership as your car manufacturer or under a separate company. However, only a car dealer can legally sell you a VSCP contract. It is illegal for anyone to sell one over the Internet as many independent companies try to do, so stick to your car dealer if you want a VSCP contract.
Another contract similar to a VSCP service contract is a dealer obligor service contract. Instead of having a manufacturer or separate company as obligor, the car dealer becomes the obligor. These are not very common anymore since most dealers only sell VSCP contracts now.
A product warranty sets the manufacturing company of the product as obligor. The maker promises to repair or replace specific parts if they break during usage for their customers. These kinds of service contracts do not usually provide as much protection because by law they can only cover parts in direct contact with the product or parts mechanically connected to it. For example, an oil manufacturer can cover engine damage but not stereo damage. Plus, they have smaller limits for damage they’ll pay.
Many often confuse extended car warranties with insurance policies, but they’re different. Service contracts are sold by car dealerships, but Mechanical Breakdown Insurance (MBI) policies are sold by banks, credit unions, insurance agents, and sometimes directly from insurance companies. MBI policies will often give you the most bang for your buck. Their prices are regulated by the Department of Insurance, so you won’t pay too much. Unlike service contracts, you can buy them over the Internet. Just make sure they’re licensed by the Department of Insurance.
All 4 categories of repair agreements are different with different obligors. It’s important to read all the details of the contract and make sure you fully understand what each will cover before buying.