Here's What You Need to Know About a Vehicle Service Contract

A vehicle service contract is an optional auto service agreement designed to cover unexpected repairs after the manufacturer's warranty has expired.

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Buying a new or used car is an exciting experience. However, it can also be daunting and may lead to unexpected expenses if it's not approached with care and caution. During the sales process, a salesperson might offer you a "vehicle service contract." Here's a closer look at this offer and what it entails.

What is a Vehicle Service Contract?

This type of contract is an auto service agreement designed to protect you from the financial impact of unexpected and often expensive repairs after your manufacturer's warranty has expired. As defined by federal law, it is not a warranty, but rather an agreement between you and a service provider to complete certain repairs if various mechanical components in your vehicle break down during a specified period of time.

These contracts aren't necessary, but they might be helpful. Considering the cost of unexpected repairs, it is entirely possible that it might be a smart purchase for you and your budgetary needs.

Is There an Industry-Standard Contract?

No. Coverages, rates, and deductibles vary across the industry, depending on the age and condition of the vehicle, your credit, and the length of the contract's term. Underwritten by a variety of partners, your contract could be administered by an insurance company, an automaker, or an independent firm.

The salesperson at the dealership could also offer a vehicle service contract when you purchase your vehicle. Know that you can negotiate the rate and length of the contract should you choose to move forward. Be sure to read the details of your potential contract carefully.

What is Covered by a Vehicle Service Contract?

Coverages vary widely by provider and underwriter, but vehicle service contracts usually cover the mechanical repairs that occur post-warranty. Think things like transmissions, air conditioners, and engines rather than parts that typically wear out due to regular use, like tires, wipers, and brakes.

It is important to remember that if you are still under your vehicle's manufacturer's warranty, it is unnecessary to obtain duplicate coverage, which is essentially what this type of contract would deliver.

Typically, as the Federal Trade Commission (FTC) notes, when your vehicle is out of commission due to repair, your contract may provide a loaner vehicle, provided it falls under the time frame specified in your agreement. If the repair phase extends beyond the limit of the loaner period specified in your contract, this is an expense that you will be expected to cover outside the bounds of the contract.

Occasionally, vehicle service plans cover regular scheduled maintenance like oil changes and system inspections. It is important to manage your expectations by reading the details of your plan and knowing what it actually covers and to what degree.

Who Can Sell a Vehicle Service Contract?

A vehicle service contract can be sold by dealers, automakers, insurance companies, and independent firms with administrators. Prices vary widely across the industry, and the same is true for the coverage itself and the length of time for which the coverage is valid.

The prices and lengths of said contracts are often negotiable, similar to auto insurance contracts. Think carefully about your needs, maintenance habits, and how long you plan to own the vehicle as you consider this additional expense.

Are There Reasons Why My Vehicle Service Contract Could Be Invalid or Inapplicable?

Yes. According to the FTC, reasons for this may include not following the routine maintenance recommended by the automaker, or adding certain aftermarket parts to the vehicle. Be sure to keep your service receipts and know what your contract says. Typically, theft, vandalism, and the damage incurred as a result of an accident are not included in these policies, but check your particular contract for specific details.

Also, be sure to read carefully to see how to access your services, how to submit and process a claim, and learn if there are any upfront costs or deductibles associated with your contract.

Is It for You?

Ultimately, the decision is up to you, your budget, and your individual needs. Read the offer carefully, know that it is negotiable, and make the best decision for your wallet and vehicle.

This site is for educational purposes only. The third parties listed are not affiliated with Capital One and are solely responsible for their opinions, products and services. Capital One does not provide, endorse or guarantee any third-party product, service, information or recommendation listed above. The information presented in this article is believed to be accurate at the time of publication, but is subject to change. The images shown are for illustration purposes only and may not be an exact representation of the product. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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Teia Collier
Native Texan with a love for people, auto, beautiful design and a grand adventure, Teia Collier is an award-winning writer based in the Dallas area. With a background in education, civic service, and public policy, she loves to discover the why behind a thing and to connect people with the best resources to make their lives better. Collier is also a mom of three, addicted to coffee, and the incoming president of the Texas Auto Writers Association.