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What Are Vehicle Service Contracts?

Education | 11/05/2021 16:30

Let’s talk about vehicle service contracts – what they are and why you could end up wanting one.

See, as part of purchasing a new car, typically, repairs and mechanical issues are covered by the manufacturer’s warranty – for a few years. This coverage provides consumers with peace of mind when first purchasing the vehicle, but a few years down the line, it will fall on them to pay for these repairs that are no longer included in the contract. 

Since most cars last 5, 10, or even 15 years on the road (depending on the make and model), you can be stuck paying out of pocket to keep your car running smoothly for many years. After all, we all know that cars come with their fair share of mechanical problems over time. 

That’s why investing in a program or agreement that can provide you with mechanical coverage throughout the lifetime of your vehicle is worth considering. A vehicle service contract acts as a form of insurance policy as your car ages, providing you with the coverage you need while acting as an intermediary on your behalf.

Here's all your questions answered about Vehicle Service Contracts.

How Does a Vehicle Service Contract Work?

Like an insurance policy, you pay upfront into your service contract. If your car ever needs any repairs covered, the provider will foot the bill on your behalf. This way, you don’t have to worry about any sudden repairs totaling thousands of dollars that can completely destroy your savings.

In this article, we will give you an overview of vehicle service contracts, how to use them, and all other pertinent details related to providers, so you can make the best decision in the end. We have reviewed top extended car warranty providers and ranked them on things like customer service, coverage options, etc. below. 

What is a Vehicle Service Contract?

As mentioned, a vehicle service contract is a paid plan that covers costly repairs after the warranty on your vehicle has transpired. Also called an extended car warranty, the service contact is available to both new or used cars. Note: as the car ages, the likelihood of frequent repairs increases, which means the contract will be quoted at a higher rate than one for a younger car.

Is there a difference between a vehicle service contract and an extended warranty?

The short answer is: yes. Vehicle service contracts do not extend a manufacturer’s warranty – only the manufacturer can agree to that. The contract mimics the factory warranty coverage as a third party, providing additional coverage that is not provided via the manufacturer. Also note: not all vehicle contracts are made equal, so be sure to check out the extended car warranty available to you as well and compare the two.

What Are the Two Types of Vehicle Service Contracts?

You have a regular and exclusionary contract option. The regular contract will list all of the things that are covered in the agreement. The exclusionary will list everything that is not. If possible, opt for the regular contract that does not use backward logic – it can be easier to identify what you are buying with the agreement.

What Are Vehicles Service Contract Price Ranges?

There is no one-size-fits-all when it comes to vehicle service contracts and pricing. The cost of the contract will depend on your vehicle’s make and model, as well as the condition of the car. It will also depend on what level of coverage you agree to, and if you want the provider to cover 99% of breakdowns and repairs. Just like an insurance policy, if your car is older and riskier to the lender, they are going to require that you pay more for the contract.

In general, these contracts can range from $199 to $1,000. Most vehicle contracts will fall into the $350 to $750 per year range. You will want to compare how much typical repairs for your vehicle will cost, when compared to this coverage. If you figure that you will owe around $1,000 this year in repairs, then taking on a $500 contract may make sense.

How Do I Use My Vehicle Service Contract?

You can access the contract anytime your vehicle needs a repair. Like any insurance company, all vehicle service contract providers will include different tiers of coverage. Not every tier is going to cover every possible repair, which again, is why you will want to review all details before agreeing and signing. Each provider will also have their own process as to how claims are filed, and ultimately, covered. Some providers will require that you pay for the repair and then they reimburse you. Other providers will partner with repair facilities and not require this kind of capital be fronted in order to engage with the repair. It depends on your cash flow and what you know is possible for your finances.

Vehicle Service Contract Exclusions to Note

When you purchase this contract, you will want to review it carefully. Most contracts will list all of the parts that are covered, however, should you find yourself with an exclusionary contract, you will want to review what is instead, not covered. Even if it appears that the repairs that you do want to be covered are not on the exclusionary list, you will want to clarify with the company exactly what their contract means.

Should I Purchase a Vehicle Service Contract?

These contracts can make a lot of sense for used vehicles, which can come with complications down the line that you were not originally aware of. If you purchase the vehicle from a reputable brand, it is recommended to first inquire into the extended warranty package and how it compares to a rate from a vehicle service contract. 

And that’s everything you need to know about Vehicle Service Contracts.

For many people, knowing there is a ceiling on how much they are going to pay for their vehicle’s repairs is all they need. 

Here are Auto Approve, we are proud to provide you with the real, genuine information you need to make smart decisions for your vehicle. We hope you have found this article to be helpful and informational.

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