Service Contracts & Extended Warranties

What’s the difference?

You’ve probably heard the terms ‘service contract’ and ‘extended warranty’ before. They basically mean the same thing—a contract or agreement in which a company pays to cover certain repairs and services on a vehicle. Depending on your situation and your vehicle, a service contract can make a lot of sense and can save you money.

Why would I need one?

Automotive service contracts generally cover repairs that could be prohibitively expensive if paid for out of pocket, rather than covering common repairs like brakes and clutches or tune-ups. Think “catastrophic engine failure” instead of “normal wear and tear.” This can be very helpful if your vehicle faces serious repairs.

Before you consider buying a service contract, it’s good to do some research. If you purchase a new car, you should look and see how long its factory warranty is. When you buy a car with a 5-year factory warranty and you only plan on owning the car for three or four years, a service contract makes little sense. However, if you plan on driving the car for years on end, it can help keep your car protected for longer. You should also check on your vehicle model’s reliability record. Some brands and models are traditionally less reliable than others, and buying a service contract for a car that tends to be unreliable can be a safe bet.

What else should I know about it?

Another major thing to research before buying a service contract is the fine print. Is there a deductible? Who is behind the warranty? What all does it cover? Who performs the repairs? The more you know going into a service contract, the more likely it is that you will be able to use it to your benefit. But if you go in without understanding its terms, you’ll likely be paying for something that you won’t ever use.