There’s a common misleading practice going around that could cost hundreds, and sometimes thousands, of dollars to those that fall prey to it.

The notorious practice we are referring to is the third party “Extended Auto Warranty.” With the complexity of today’s automobiles, costs of repairs can be very high, making the peace of mind these “warranties” give very attractive.

There is quite a difference between a manufacturer’s extended warranty and what these third-party companies are offering. A warranty is a manufacturer’s guarantee that comes with a new car and covers a specific time frame or mileage limit. Used cars may also come with some type of warranty coverage from the dealer.

What these third-party companies want you to purchase is not a warranty but a service contract, which is a form of insurance. Legitimate auto dealers can also sell service contracts, and industry experts agree that a factory-backed service contract is best.

These companies “extended warranties” may be delivered to victims by postcard, letters and phone calls. Mailings are designed to look official and pressure the recipient to act immediately. They contain ominous warnings about deadlines, final notification attempts and fines or imprisonment for any person interfering with the delivery of the letter. Phone calls pretty much contain the same warnings, while leaving a phone number to call back.

While there are many honest, legitimate service contract providers, most of the notifications and phone calls you get are from the misleading companies. They either want to sell you a high-priced, nonexistent, inferior product or, even worse, get your credit card and personal information.

An investigator recently called one of the bogus companies to see how they operated. The salesman pressured the caller claiming that if he didn’t act that day, the computer would automatically delete the file, and the caller would be unable to obtain an “extended warranty.” The caller then asked for a copy of the warranty to be sent to them but was refused, with the salesman saying, “We don’t send out paperwork without receiving a down payment. Once the down payment is made, the policy will be mailed to you within 10 business days.” Needless to say, if they can’t send you written information about what is covered; you should never send them money!

Here are some tips to avoid the third-party “Extended Auto Warranty” scheme:

1. If you receive mail or phone calls about your vehicle warranty, be sure to check with the dealer or your owner’s manual to see when your factory warranty expires. Don’t trust information from unsolicited mail or phone calls.

2. Before you do business with anyone offering you an extended warranty service contract, research the seller and the company administrator responsible for paying claims. Also check with the BBB or Attorney General’s office in the state where the company is located about complaints.

3. Don’t sign anything until you have carefully read and know exactly what is and isn’t covered in the service contract.

4. Stick with the manufacturer’s extended warranty coverage. At least you’ll know you’re dealing with someone whom you’ve trusted enough to buy a car.

5. Be wary of high-pressure tactics and fast talkers! Take your time. Don’t fall for “limited-time specials” designed to create a false urgency.

By following these tips, if and when your car breaks down, you’ll have either a very good service contract or still have the money you would have spent on a bogus “extended warranty!”