Canceling a Vehicle Service Contract
Much like insurance, car warranties can be cancelled with a prorated refund to the customer. Chargebacks cause issues for the car dealership, warranty administrator, and the agent but are a necessary evil. If a customer pays $2,000 for a warranty and with a 4-year term and it is cancelled after 1 year, they are entitled to the remaining $1,500.
Pro-rated refunds offer the consumer protection from abuse by warranty company administrators. If a warranty company denies a valid claim for example, the consumer may feel entitled to a refund for the remaining premium. In addition, if a warranty is financed and the consumer fails to make a payment, their remainder of the warranty is cancelled.
Service contracts are typically transferable between owners. On many occasions however, the warranty might be cancelled when the owner trades in the car for a new one.
If a customer files a claim and the administrator pays for the repair, the customer can still cancel. During these circumstances however, they are only entitled to the prorated price of the warranty minus the cost of the repair work.