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If you’re car shopping in California, you might hear the terms “extended warranty” and “service contract” thrown around interchangeably. But in the Golden State, the difference could save you from scams and hidden fees.
Extended car warranties work differently in California than in many other states because of California’s strict consumer protection laws. These laws come with special rights and protections for car owners.
I read pages of official regulations to get to the details that help you know your rights as a car owner. Here’s an overview of how the “California Car Buyer’s Bill of Rights” works:
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Companies aren’t allowed to sell you vehicle service contracts directly over the phone or the internet.
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A dealer can’t require you to purchase an extended warranty or vehicle service contract to get financing for your car.
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You can cancel your contract for a full refund within 60 days for a new car and 30 days for a used car (or a prorated refund after that).
How California’s warranty and insurance laws work
California has strong consumer protection laws with special regulations for consumer products, including car warranties, insurance and vehicle service contracts.
Two products that are sometimes called “extended warranties” are regulated differently in California. They provide similar protections (you typically don’t need both), but have different legal standards and processes:
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Mechanical Breakdown Insurance (MBI) can be added on to your car insurance policy. It protects you from mechanical and electronic failures, and can help pay for repairs after a breakdown.
In California, this type of insurance is regulated by the California Department of Insurance (CDI), and the rates need to be approved by the state. You can purchase it from your insurance company, but you may also be able to get it through some credit unions and other special providers.
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Vehicle Service Contracts (VSC) are agreements to prepay for certain repairs. Companies can sell these contracts as “extended warranties” in some states. However, in California, it’s a felony for a company to sell this kind of contract directly to you. You can buy a VSC in California directly from the dealership when you buy or lease a new car, or from another qualified dealer.
Companies selling VSCs in California also need to be licensed by the CDI. They also need to have backup insurance to make sure repairs are covered. Otherwise, the company needs to prove it has a net worth of at least $100 million.
California’s cancellation policy
If you’re not happy with your MBI or VSC, you have the right to cancel your contract for a full or partial refund, depending on how long you’ve had it. These rights are protected by California Civil Code §1794.41. Here’s the breakdown:
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New cars: 60 days to cancel for a full refund, if you haven’t made any claims.
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Used cars: 30 days to cancel for a full refund, if you haven’t made any claims.
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After the cancellation period, you can cancel for a prorated refund based on the amount of time or car mileage. You may have to pay a small administrative fee, which can’t be over 10% of the warranty price or $25, whichever is lower.
When you buy or lease a car in California, the dealer has to disclose anything that’s included in your monthly payment. These can include a service contract and any type of insurance agreement. This protects you from hidden fees, because the dealer can’t add any charges without your consent.
How to purchase an extended car warranty in California
Because of California’s strict laws, warranty companies might not be able to sell you the same product they can in other states. Some companies offer a different contract that meets California’s regulations. For example, Endurance offers “hybrid” MBI plans that meet California’s requirements.
Here are some helpful steps to follow to make sure you’re getting the most out of California’s legal protections:
1. Start with your auto insurance provider. Car insurance companies like Mercury or GEICO are already licensed insurance providers. These companies offer MBI as an add-on to your car insurance and may cost less than a VSC. Keep in mind that you’ll have to purchase MBI while your car is close to brand-new.
3. Don’t fall for the pressure. Car dealers in California legally can’t require you to buy MBI, a VSC or any other kind of extended warranty coverage to buy, lease or finance a car. The same goes for any other kind of pushy sales tactics – if anyone’s pressuring you to lock into a contract, it’s a red flag.
4. Dive into the coverage terms. Just because a VSC or MBI is legally regulated doesn’t mean it’s always worth it. For example, some vehicle service contracts charge a “per repair” instead of a “per visit” deductible. This means that if you get three things fixed in one visit, you’ll have to pay three separate fees. Make sure you take advantage of California’s full disclosure policy and read all the way through your contract. If you end up finding something fishy in the fine print, you can still cancel for a refund.