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After serving faithfully for several years, your car just broke down, and the mechanic says the repairs won’t be cheap. Since it’s no longer under warranty, the manufacturer won’t cover this sudden expense. But this isn’t a problem if you have an active automobile service contract that covers costly repairs.
But what is a service contract on a car? Do you really need one? The answer depends on your plans for your vehicle and how well you’re prepared for unexpected repair costs.
A vehicle service contract (VSC) provides continued repair coverage for your car long after its manufacturer warranty expires. Also known as an automobile service contract or extended warranty, VSCs are available as add-ons when purchasing a new or pre-owned vehicle. Alternatively, you can buy one later from a dealership, manufacturer, or third-party provider.
While most VSC providers offer it as a separate product, some let you bundle a service contract with auto loan refinancing. This makes the VSC’s cost part of your refinanced loan so you can conveniently pay both off together.
Depending on your vehicle’s mileage, model and coverage, a VSC can cost anywhere between $500 and $4,000. You can pay the full cost upfront or in monthly installments, often with interest. Whichever payment option you choose, vehicle service contracts can be worthwhile because they cushion the financial burden of unexpected car repairs.
Some automobile service contracts offer more coverage than others. For example, some offer basic powertrain coverage, which protects essential systems like the engine, transmission and drivetrain.
More comprehensive service contracts, like bumper-to-bumper coverage, cover nearly all major vehicle systems. However, they typically exclude routine maintenance, cosmetic damage and wear-and-tear issues like worn-out tires and brake pads.
Also, keep in mind that most VSCs are either inclusionary or exclusionary contracts. Inclusionary contracts clearly list the vehicle parts they cover, while exclusionary contracts only list the parts they don’t cover.
Many VSCs require paying a deductible each time you make a repair claim. The deductible could be $0 or over $200 per visit, depending on your contract. A $0 deductible means you pay nothing out-of-pocket whenever you get a repair. While this sounds attractive, it’s worth mentioning that such service contracts typically cost more upfront.
Make sure you understand the terms of how your extended service contract works before signing. Otherwise, you risk choosing a VSC that doesn’t align with your budget or desired coverage.
While many people use “auto service contract” and “warranty” interchangeably, they don’t always mean the exact same thing. Vehicle manufacturers issue warranties to cover the cost of repairing specific faults, such as manufacturing defects. These warranties typically expire after a specified time or mileage limit passes, such as after three years of ownership or 36,000 miles.
Service contracts, on the other hand, provide vehicle repair coverage after the manufacturer warranty expires. Unlike warranties, which come with the vehicle, you have to buy automobile service contracts separately.
Service contracts don’t last forever either. Like warranties, they expire once you pass the term or mileage limit specified in the contract. On the upside, service contracts are usually renewable for continued coverage, while warranties typically aren’t.
Getting an automobile service contract has several advantages, such as:
However, auto service contracts also have a few downsides, which may include:
A vehicle service contract is the way to go if you plan on using your car long after its warranty has expired. Without one, you’ll have to pay for all car repairs yourself, which can be expensive. But with the right service contract, you can rest easy knowing you don’t have to pay for most vehicle repairs yourself.
RefiJet’s Extended Service Contracts help reduce your out-of-pocket vehicle repair costs. Besides offering repair coverage, we cover towing costs and let you choose your preferred mechanic.
Contact us today to learn more about our Auto Refinance Loan and Extended Service Contract bundle.
Here are answers to the most commonly asked questions about automobile service contracts.
Yes, vehicle service contracts are worth getting if you plan to keep using your car long after its manufacturer’s warranty expires. The best contracts cover repair costs for various vehicle faults, providing a safety net against unexpected expenses.
Basic vehicle service contracts usually include coverage for essential powertrain components, such as the engine, transmission and drivetrain. Routine maintenance and air conditioning, electronic or suspension systems may be excluded. Since coverage details typically vary between providers, it’s crucial that you understand the contract before signing.
Some service contract providers offer a full refund if your vehicle is declared a total loss. However, it’s more common for providers to offer a pro-rated or partial refund. The pro-rated refund amount you’ll get typically depends on the time or miles left on your service contract.
Yes, you might need an automobile service contract even if you have insurance. After all, insurance covers accident damage, theft and liability — not mechanical breakdown repairs. A service contract helps pay for the repair of various vehicle faults, offering coverage that insurance doesn’t.
Yes, many providers let you tailor vehicle service contracts to your budget and coverage needs. For example, you can choose the contract duration, deductible amount and covered car parts. How much you can customize a service contract typically varies between providers, with some offering more flexibility than others.
Explore the common extended car warranty cost, including factors affecting pricing and different warranty levels for vehicle protection.
