A Vehicle Service Contract (VSC) is an automotive protection plan that covers the cost of certain repairs and breakdowns in exchange for an upfront or monthly fee. Unlike auto insurance, which covers damage from accidents, a VSC helps pay for mechanical failures and unexpected repairs, giving car owners peace of mind.
While individual drivers often purchase a VSC for their own vehicle, fleet operators also use these contracts to protect multiple vehicles under their management. The terms of a VSC outline which repairs are covered and under what conditions, helping consumers avoid costly out-of-pocket expenses when unexpected breakdowns occur.
Understanding the difference between a Vehicle Service Contract and auto insurance is key. Insurance primarily covers accident-related damage, while a VSC steps in when a vehicle experiences a mechanical failure unrelated to a collision. For many drivers, having both types of coverage provides the best financial protection against unforeseen car expenses.
That being said, it is of the utmost importance that you understand what vehicle service contracts are (and what they are not), so that you can make an informed decision. Without further ado, let’s dive in.
Vehicle Service Contracts vs Extended Warranties
Believe it or not, there is actually no such thing as an “extended warranty” for a car, truck, or SUV that comes from a third party (not the manufacturer or the dealer). Let’s take a closer look at this common misconception.
The term “extended warranty” is used colloquially by third party companies, but technically it does not exist. A warranty is something that comes with the purchase or lease of the vehicle. It can be given by the manufacturer (most typically) or the dealer, but it is an incident of the sale. Warranties are express (the vehicle conforms to a written statement like this vehicle has a new transmission) or implied (warranty of merchantability or fitness for a particular purpose such as if the dealer knows the customer will use it for commuting).
If a customer pays for extended coverage, that is a vehicle service contract. Under the Magnuson Moss Act, if a dealer sells a vehicle service contract to the customer within 90 days of sale, the dealer cannot disclaim implied warranties. Nevertheless, the term “extended warranty” is sometimes used incorrectly to refer to a vehicle service contract.
Of course, vehicles can (and do) have warranties. Those warranties most commonly come from manufacturers. For example, Kia offers a 10-year/100,000 mile limited powertrain warranty on new vehicles. If you’re then being sold an “extended powertrain warranty,” look at the fine print to confirm it is coming from either the dealer or the manufacturer.
If it is a third party, know that they are not selling you an extended powertrain warranty, they are selling you an extended service contract that covers the vehicle’s powertrain. There is a difference between the two. You’ll know it’s a third party if the name on the contract isn’t the dealership’s or the manufacturer’s company name.
Types of VSC Coverage
Typically, when we talk about coverage, we talk about two things: stated coverage and exclusionary coverage. Stated coverage refers to a policy where the covered items are explicitly listed in the contract. If it is not stated as “included” then it is not covered. Exclusionary coverage is broader, and therefore offers better protection for the consumer. If a part is not specifically listed as excluded, then the contract provider has to pay the claim for the part. This type of coverage is the best because it protects your vehicle in all but a small selection of circumstances.
Are Vehicle Service Contracts Worth It?
Now that we know the difference between a vehicle service contract and an extended warranty, the question is, are vehicle service contracts worth it? To answer this question we need to talk about VSC coverage for new and used vehicles.
Vehicle service contracts for new vehicles
Are vehicle service contracts worth it for new vehicles? In summary, it depends on your risk tolerance.
Any vehicle service contract you are offered is inclusive of manufacturer warranties. What does this mean? This means that a vehicle service contract does not replace, nor extend a manufacturer’s existing warranty on a vehicle.
With that in mind, why then would you buy a VSC, if the manufacturer warranty is already in place? There are two reasons:
- The VSC will cover other things outside the scope of the manufacturer’s warranty; and
- VSCs for new vehicles are generally very cheap.
Let’s unpack both of these two reasons why you should consider getting a VSC on a new car.
First, it’s important to understand that many administrators offer perks with their service contracts to make them more appealing to new car owners. For example, trip interruption coverage, rental car reimbursement, and 24/7 roadside assistance are all included in CarEdge’s vehicle service contract. These are perks that are typically not included in a manufacturer’s warranty.
Generally, new car vehicle service contracts are much more affordable. Unfortunately, for consumers, most dealers add incredible mark up to these products, so you’d be hard pressed to consider them “cheap” when you’re sitting in the finance and insurance office at the dealership, but CarEdge is proud to offer the best Vehicle Service Contract pricing.
At the end of the day, if you’re able to negotiate a fair price on a VSC for a new car, it can most certainly be worth it. Purchasing coverage for your new car is entirely up to you and your risk tolerance. And, as always, read the contract before you sign!
Vehicle service contracts for used vehicles
Similar to new cars, service contracts for used vehicles are priced according to how much risk the plan administrator is taking on. That being said, service contracts for used vehicles are the same “value” as they would be for a new vehicle.
It is important to understand that if the used vehicle you are purchasing has existing manufacturer warranties in place (for example the vehicle you are buying has 25,000 miles on it, and the manufacturer warranty cover up to 36,000 miles), then the vehicle service contract is inclusive of that existing warranty (just like what we discussed above with regards to new cars). For clarity, this means that the service contract does not extend the manufacturer’s warranty, instead it exists in conjunction with the manufacturer’s warranty.
It is very important that you read the contract carefully before purchasing a vehicle service contract. In the contract you will see what repairs the administrator excludes. The last thing you want to do is sign up for a service contract, only to go to the repair shop one day and have to foot the bill because what broke wasn’t covered.
Peace of Mind Is Just a Click Away
When deciding whether a VSC is worth it, consider your risk tolerance, vehicle reliability, and budget for unexpected repairs. For new cars, an affordable service contract can be a smart way to add extra perks like roadside assistance, trip reimbursement, and rental car reimbursement. For used cars, a VSC can provide financial protection against costly repairs, but it’s essential to read the contract carefully to understand what’s covered.
At CarEdge, we believe in transparency — no inflated dealership markups, just fair pricing for coverage that can give you peace of mind. Get your vehicle service contract quote in minutes, and rest assured with CarEdge!
Many years ago I purchased an “extended warranty” on a new car. After receiving the warranty document, I was surprised (my fault because I didn’t read the contract completely in advance) to learn that the “warranty” terms required service intervals that were in excess of the manufacturer’s service recommendations. For example, it required a change of transmission fluid and filter every 10,000 miles which far exceeds service requirements even under the most severe operating conditions. It became obvious to me that if I were to scrupulously maintain the car according to the “extended warranty,” there would never be a need for repair. I, on the other hand, would be shelling out money for needless maintenance which would completely obliterate the potential savings that a “warranty” was to cover.
I agree; the “warranty” may also be avoided if you perform your own oil changes and don’t have an official receipt from an official shop. (I use Royal Purple with K&N oil filters -only need a 1″ socket wench to remove! which far surpass the vehicle’s minimum requirements) Also, you never know if they will repair your car with OEM, remanufactured or cheap “knock off” parts.
I have to replace the engine in my 2022 Hyundai Santa Fe due to a third-party mistake. It was not covered by 10/100K mile warranty as was not Hyundai’s fault. The new engine will be considered a “part” and will only have a 12mo./12k mile warranty. The rest of the 10/100K mile warranty will remain in effect. Third party is paying for a VSC to keep the original 10/100K whole.
Do I need to purchase a powertrain VSC? While the engine would be covered it would be duplicating coverage on everything else in the powertrain; a costly proposition.