Pros and cons of vehicle service contracts

When you buy an appliance or a computer, you may opt for additional coverage beyond the manufacturer's warranty for non-covered repairs. This type of extra protection can also be found in the world of cars in the form of vehicle service contracts. Let’s learn a little more about how these contracts can potentially help car owners manage their maintenance costs. As you consider entering these contracts, be aware that warranties, extended warranties, vehicle service contracts, and other terminology may be used interchangeably but often refer to different benefits.

How vehicle service contracts work

A vehicle service contract is an agreement to cover a variety of maintenance costs. This may be with a third-party service provider or through the manufacturer. Service contracts can cover a range of fixes to suit your needs, with most contracts categorized as either inclusionary or exclusionary:

• Inclusionary contracts: Inclusionary contracts cover repairs for components that are limited to a predetermined list of items. 
• Exclusionary contracts: Exclusionary contracts provide coverage for everything outside of a predetermined list of items.

Though exceptions exist, there are some things that most vehicle service contracts typically don’t cover. These usually include:

• Damage to the tires or wheels
• Damaged upholstery 
• Regular wear and tear 
• Deteriorated brake pads
• Broken glass

Vehicle service contracts vs extended warranties

When you buy a new car, it’ll typically come with a manufacturer’s warranty to cover any defects. This warranty may last a few years or a few thousand miles, whichever comes first. Extended warranties are offered to cover the cost of major repairs after the manufacturer’s warranty expires.

By contrast, vehicle service contracts typically cover smaller, routine maintenance items like tire rotations or oil changes. These aren’t typically covered by extended warranties. Some dealerships also use these terms interchangeably, so it’s best practice to inquire about the specifics of what’s covered. 

How to use a vehicle service contract

Using your vehicle service contract for repairs can be like using your health insurance to see a doctor. When you need work done, you may need to take your car to a repair shop that’s approved by your plan.

The mechanic will then contact your service plan’s administrator and give them a diagnosis of your problem. If your claim is approved, the technician will complete the repairs. Depending on your contract, you may need to pay a deductible.

Pros of vehicle service contracts

Depending on your needs, vehicle service contracts may be attractive options for car owners.

Lowers cost of repairs

A major selling point of vehicle service contracts may be their potential to lower your maintenance costs. While there may be some monthly fees and deductibles to pay, the cost of repairs without a contract can quickly add up to outweigh those.  

Comes with additional perks

Service contracts may come with perks beyond just reimbursements for repairs. Some may offer extra benefits like car rental reimbursement, roadside assistance and towing.

Potentially large network of service shops

Vehicle service contracts may cover repairs at a wide network of approved repair shops, so it may be possible to find one even if you’re traveling. Plans are also typically offered in a variety of budget and coverage levels to help suit your needs.  

Cons of vehicle service contracts

Vehicle service contracts may not be an ideal solution for everyone based on some of their potential drawbacks:

Additional cost

Car payments may already be an ongoing monthly expense for car owners. And a service contract may carry its own monthly charge as well as a deductible for visits to a repair shop. 

Not everything is covered

As you learned earlier, vehicle service contracts may only cover certain types of repairs. Many everyday issues such as upholstery damage, tire damage or regular wear and tear may not be covered by these policies.

Claims can be denied

Vehicle service contracts may require you to submit claims for any repairs you’d like done. Like other forms of insurance, your claim may be denied. If that happens, you may have to pay out of pocket.

In summary

Vehicle service contracts can cover various repair costs beyond the coverage provided by the manufacturer's warranty. These contracts may help you lower your maintenance costs, but they may also come with recurring charges of their own. Finally, companies may offer different levels of coverage, which suggests there may be a contract out there that’s right for your needs and budget.