Do you know the difference between a service plan and a maintenance plan? What about a factory warranty, and an extended factory warranty?
For many consumers, particularly first-time car buyers, understanding these options can be confusing, and stressful. Many buyers also don’t know what their rights are and whether these products are optional or mandatory.
“When buying a vehicle, it’s important that customers understand what they’re getting into, and appreciate all the costs they are signing for. Having knowledge of the add-on plans is as important as ensuring the actual vehicle meets all their needs, so being informed about the different options will help them make better decisions,” explains David Chard, Managing Director of AA Warranties.
Service and maintenance plans
A critical first piece of information regarding service and maintenance plans is to understand they have limited lifespans when bought with a new vehicle. They will remain ‘active’ for as long as the car has a specific number of kilometres, or is of a specific age. This information is specified at the point of sale when the vehicle is bought.
A service plan covers the costs of regular scheduled services determined by the manufacturer. Items covered under a service plan are marked by an “R” (for replacement) at service intervals. Buyers must check with the dealer or consult the vehicle’s handbook to find out when these intervals are. Importantly, a service plan does not cover wear and tear on a vehicle, nor does it cover mechanical breakdown.
“A service plan is, essentially, regarded as a budgeting tool for consumers. It can either be bought upfront, as a term product or can be purchased as an on-going as it is a monthly payment. But either way, it covers the prescribed services for a specific duration of time or kilometres, with the premium paid to cover the costs of service when needed,” says David.
He explains that a more expensive – and more comprehensive – plan is the maintenance plan. A maintenance plan covers all routine servicing (again, according to the manufacturer’s schedule), as well as cover for mechanical failures, and wear and tear.
Many maintenance plans are included in manufacturer’s new car sales but these can also be bought separately.
“While these plans have an initial limited lifespan, they can be lengthened through purchasing extensions or follow-on maintenance plans.
Warranties are further distinguished from both service and maintenance plans. A mechanical warranty will cover mechanical failures or breakdown of parts, but will typically not cover scheduled services or wear and tear. They cover the risk of parts failing. Like the other products, they are often included by the manufacturer on new cars but can be extended or replaced with another equivalent once their initial term has expired.
David says that these extension or replacement products on expiry of manufacturer ones are especially useful, and important, for two reasons.
Firstly, research shows that in tough economic times car owners keep their vehicles for longer before replacing them. In the past, owners may have opted for new cars every three to five years. Now, this has been stretched out to seven or more years. This means that caring for the vehicle becomes even more important as the use of the car needs to extend for longer.
A second important reason is that more pre-owned vehicles are being bought instead of new vehicles. But, while buyers still want peace-of-mind motoring, manufacturers’ service and maintenance plans may not be applicable any more (particularly for vehicles older than five years).
“What we’ve seen is that changing vehicles just to have the peace-of-mind of a manufacturer’s new warranty or motor plan can be extremely costly, and has the potential to drive buyers into debt. Also, with the right products, it is potentially unnecessary,” notes David.
But, says David, this doesn’t mean buyers shouldn’t have any cover.
“Keeping an older used car without a service plan, maintenance plan or at least a warranty exposes the owner to potentially crippling maintenance and repair costs and can result in a nasty financial surprise. We’ve heard stories from people who have had to come up with thousands of Rands to get their cars back on the road. One doesn’t want unnecessary products, but one also doesn’t want to be stranded,” David says.
For this reason, extended warranties are growing in popularity in South Africa as car buyers, both new and pre-owned vehicles, either extend or renew plans which will cover them in the event of breakdowns.
“An extended warranty offers a lifeline to motorists when they need it most, and ensures the vehicle can be operational again far quicker than if the owner first has to raise a lot of money to have it repaired. An added benefit is that some of these warranties are available on a pay-as-you-go basis, meaning buyers can purchase them on a monthly basis and not only when cars are changing hands at a dealership. This is an extremely attractive option for many buyers,” concludes David.