What Is a Vehicle Service Contract and When Would I Need One?

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If you’ve ever bought a new vehicle, you might already be familiar with the manufacturer’s warranty. A manufacturer’s warranty usually covers a car for a few years, including covering repairs for parts and systems that break down due to flaws and defects. Unfortunately, this warranty does not last forever.
This is where the vehicle service contract comes into play. Also known as an extended warranty or an auto service contract, a car dealer will usually offer you this option when you buy a new car. This paid plan covers the vehicle beyond the initial manufacturer’s warranty and can even be extended as it nears its end.
Before buying a new car, it is useful to learn about the vehicle service contracts available to make sure that your car is covered beyond the vehicle’s original manufacturer’s warranty. And remember that in addition to a vehicle service contract, you still also need car insurance to protect your investment.

What is a vehicle service contract?

A vehicle service contract is the extended warranty that you have the option of purchasing when you first buy your car. It covers any parts that break down and the repairs associated with those part breakdowns. Keep in mind, though, a vehicle service contract does not cover everything.
Most vehicle service contracts cover the following:
  • All major vehicle systems, in the case of a bumper-to-bumper extended warranty
  • Powertrain, which includes the engine, transmission, and other key systems that make your car go
  • Corrosion or damage caused by rust
  • Roadside assistance, including towing, trip interruption service, and a rental car if your car needs to go in for repairs
  • Certain kinds of mechanical breakdowns
Some extended warranties even cover wear and tear, though this is usually not the case. Some plans may also cover rental car reimbursement. Always make sure that you read and understand the extended warranty before buying it.
Check to see if your warranty will require you to keep up with all routine maintenance recommended by your car’s manufacturer. Maintenance could include oil changes, regular inspections, tire rotations, and more.

When do you need a vehicle service contract?

So, you might be asking yourself, “When do I need a service contract?” Start by asking yourself how long you plan on keeping your current car. If you only plan on keeping your car for a short time, then you might be better off skipping the extended warranty. For example, if you only plan on driving your current car for six years and you have a five-year manufacturer’s warranty, you are better off skipping getting an extended warranty.
On the other hand, if you plan on keeping your current car for many years, then an extended warranty can help pay for any costs if your car breaks down. You should also look up reviews for the vehicle to see if the make and model has a tendency to break down. If so, a vehicle service warranty might be just what you need.

How much is a vehicle service contract?

The overall cost of a vehicle service contract depends on the make, model, and condition of the car. The price of the warranty also depends on the length of the warranty and the type of coverage you choose. Usually, the initial costs can run from $1,000 to several thousand, and you might even have to pay a deductible before any benefits kick in.
Other limitations on an extended warranty include only paying a limited amount for towing or a rental car associated with the car having to go into the shop. Some extended warranties even have a cancellation or transfer fee if you sell the car before the contract is up.

How does a vehicle service contract work with a gap waiver?

When you buy insurance for your car, gap insurance can help cover the difference between what the car is worth and what you owe on the car if it is totaled in an accident or stolen. This difference comes about because of depreciation, with most vehicles losing roughly 20% of their value within the first year.
And while a vehicle service contract helps pay for repairs while you are driving your vehicle, if for some reason it is stolen or totaled beyond repair, a gap waiver ensures that your car is paid for regardless of the difference between how much you owe and the value of the car.

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