Vehicle service contracts: A complete guide

Key points

• Vehicle service contracts, or extended car warranties, help cover the cost of vehicle repairs.

• Contracts are available from vehicle manufacturers and third parties, each offering unique advantages.

• Extended car warranties cost an average of $848 per year.

A vehicle service contract (VSC) or extended auto warranty is an optional policy that guarantees the contract provider will pay for parts, labor and other specific services that your vehicle may need when you submit a covered claim.

But choosing the right coverage may seem intimidating. There’s a lot to consider when shopping for a dependable vehicle service contract, such as the provider’s reputability, said Michael Chung, senior director of market intelligence for the Auto Care Association.
The best extended car warranty companies offer different coverage options depending on your vehicle, budget and needs. We recommend getting a free quote from our No. 1 rated provider, Endurance, below:

What is a vehicle service contract?

A vehicle service contract, or extended car warranty, is an optional service contract designed to protect you from the financial shock of critical vehicle repair needs.

Extended car warranties provide peace of mind for drivers with vehicles of all makes, models and ages. Most extended car warranty providers offer multiple contract options for different repair needs and budgets. 

What does a vehicle service contract cover?

Vehicle service contracts cover vehicle repair needs after the manufacturer’s or factory warranty expires. Available coverage, eligibility requirements and contract terms vary by contract type and provider. 

The most common types of vehicle service contracts are basic powertrain warranties and comprehensive bumper-to-bumper or exclusionary car warranties. Mid-tier contracts that bridge the coverage gap between powertrain and bumper-to-bumper plans are also available.

Powertrain vehicle service contracts

Most powertrain vehicle service contracts offer stated component coverage, meaning they cover only the parts and repairs specifically listed in the contract. Powertrain coverage typically covers the following systems: 

• Drivetrain: The drivetrain includes wheel bearings, drive axles, drive shaft, differentials, the transfer case, joints and differential/axle housing. 
• Engine: Powertrain contracts cover limited engine components, including the pistons, crankshaft, oil pump and pan, cylinder block and select belts, gears, gaskets and seals.
• Transmission: Transmission repairs covered by powertrain warranties can include the torque converter, fluid lines, transaxle, clutch, and select gears and sensors.

Exclusionary vehicle service contracts

Exclusionary contracts, unlike stated component contracts, cover everything except the parts and repairs listed. Exclusionary vehicle service coverage includes all standard coverages for powertrain contracts plus additional parts and repairs across multiple vehicle systems, such as air conditioning systems, high-dollar electric components, brakes and steering. It’s easier to list what isn’t covered by these types of vehicle service contracts than what is.

What does a vehicle service contract not cover?

No matter which type of vehicle service contract you choose, routine maintenance isn’t covered. To keep from voiding your coverage, stay ahead of upkeep tasks that include oil changes, filter changes, tire rotation and brake pad replacements. Cosmetic damages, such as dings on your car’s body panels or tears in its upholstery, are paid out-of-pocket.

Because vehicle service contracts are designed to protect you from faulty parts and repairs, they have built-in protection against user error and other types of vehicle damage. This means you shouldn’t expect vehicle service contracts to cover damages resulting from any of the following causes:

• Weather: Damages from hail, wind or other weather conditions are not covered by extended car warranties.
• Car accidents: Vehicle service contracts do not cover damages caused by vehicular crash or accident. 
• Aftermarket modifications: If you modify your vehicle’s original design, those new parts, and any typically-covered parts damaged by modifications, will not be covered by your vehicle warranty.
• Misuse or improper upkeep: Your contract won’t cover damage caused by reckless driving or failure to maintain your vehicle in good working condition.
• Theft or vandalism: If your vehicle is defaced or otherwise damaged by vandalism or theft, vehicle service contracts will not repair or replace parts.

Comprehensive or full-coverage car insurance typically covers some causes of vehicle damage above — such as severe weather, car accidents, and theft. Speak to your car insurance company to determine what your policy covers and if you need to adjust coverage. By choosing the right levels of coverage for your vehicle service contract and insurance coverage plans, you can ensure all bases are covered.

Vehicle service contract benefits

Most vehicle service contracts have additional benefits, each designed to help streamline the vehicle repair process. The most common perk among vehicle service contracts is emergency roadside assistance, which includes some or all of the following services:

• Battery jumpstart
• Flat tire assistance
• Fuel delivery (if your car runs out of gas)
• Lockout assistance
• Towing

Many vehicle service contracts also offer rental car reimbursement, which helps cover any rentals you may need to pay for out of pocket while your car is in the shop for an unexpected repair.

Where can you buy a vehicle service contract?

Vehicle service contracts are available for purchase through select vehicle manufacturers, dealerships and extended car warranty companies. But, there are some key differences to note during the purchasing process.

Manufacturer-backed vehicle service contracts use genuine original equipment manufacturer (OEM) replacement parts but require you to take your car to specified repair facilities. On the other hand, third-party warranty contracts may not use genuine OEM parts but will offer coverage at a wider selection of repair shops nationwide. 

If you purchase a vehicle service contract from your vehicle’s manufacturer, you’ll usually need to select your coverage before any new vehicle or certified-preowned (CPO) warranty coverage ends. In contrast, you can buy coverage from an independent extended warranty company at nearly any time during the life of your vehicle. However, most companies restrict eligibility for their contracts using mileage caps. 

How much does a vehicle service contract cost?

Expect to pay an average of $848 per year of coverage for a third-party extended warranty — we reached out to the industry’s leading vehicle service contract providers and received quotes for various levels of coverage for popular sedans and SUVs. How much you’ll pay for a vehicle service contract depends on your vehicle, the type of coverage you select, which provider you choose and other factors. 

Most of your vehicle service contract costs will likely be paid before your coverage expires. For this reason, you may see higher per-year totals during the initial portion of your coverage. The full amount you pay for your coverage may include an initial down payment and a deductible for each service instance.

How long do vehicle service contracts last?

Extended vehicle warranties or service contracts tend to be capped at specific vehicle mileages, not years. Most extended service contract companies stop coverage at 250,000 miles, though some may offer higher limits. 

Vehicle service contracts vs. mechanical breakdown insurance

Though they seem similar, vehicle service contracts are not the same as mechanical breakdown insurance. While both provide coverage for specific vehicle repairs, mechanical breakdown insurance typically has stricter eligibility requirements and lower monthly payments. These plans also have limited availability and are only sold by a few insurance providers.

Vehicle service contracts offer more flexible coverage choices, more forgiving mileage caps and longer coverage terms than mechanical breakdown insurance. However, these plans can cost more. 

Is a vehicle service contract worth it?

If your car is beyond or near the end of its limited warranty coverage and you plan to keep it, investing in a vehicle service contract may be wise. As your vehicle ages, the likelihood of facing expensive repairs increases. Vehicle service contracts are a way to keep unexpected mechanical breakdowns from breaking your budget.

How to choose the best vehicle service contract

You can get the most out of your vehicle service contract by following these guidelines while shopping for a vehicle service contract.

Determine your coverage needs

Begin by deciding how much coverage, if any, you currently need. If you have existing factory coverage on your vehicle, you may only need coverage for systems and parts your existing warranty doesn’t cover.

Budget for your coverage

Set a hard limit on how much you can spend on vehicle warranty coverage before you begin shopping. Also, consider how you’d like this sum to be paid. Most vehicle service contract providers offer long-term or month-to-month contracts. 

With long-term contracts, you’ll pay the majority of the contract during the first years of coverage in the form of a down payment and monthly payments. With this type of contract, your coverage may be paid in full before it expires.

Month-to-month contracts typically have unlimited terms. This means you’ll pay any applicable down payment and a monthly fee for as long as your coverage lasts.  

Compare coverage and quotes

One of the most important things to do when shopping for a vehicle service contract is to compare your coverage options. Review coverage details and costs, including any down payments or deductibles, from several companies before committing to a contract. Make sure you understand any coverage exclusions, limitations and circumstances that may void your coverage.

Final take: Vehicle service contracts are a way to extend repair coverage after your vehicle’s factory warranty expires

Vehicle service contracts are available from vehicle manufacturers and third-party extended warranty companies. These contracts can cover parts and repairs for almost every system in your vehicle, though some restrictions and limitations may apply. Coverage type, pricing, and availability vary by provider.

If a vehicle service contract sounds like a good fit for you, it’s important to do your research and read the fine print before choosing a provider.