A service contract, sometimes referred to as an extended warranty, is designed to offset repair costs after the purchase of a new or used vehicle.
Not to be confused with a manufacturer's warranty, extended warranties kick in after the expiration of the manufacturer's bumper-to-bumper warranty. Extended warranties are sold as a separate contract, and—unlike a manufacturer's warranty—are not included in the purchase price.
An extended warranty will pick up repair coverage for a designated number of years AFTER you have reached either:
- The allowed mileage on the original manufacturer's warranty.
- The number of years of the manufacturer's warranty.
- Example: 3 years or 36,000 miles.
An extended warranty can be purchased at a dealership at the time of sale, or after the sale but before the manufacturer's warranty has expired.*
The two types of extended warranties are:
- Dealership extended warranty.
- Third-party extended warranty.
NOTE: Extended warranties may be available for some but not all vehicles after expiration; costs may increase significantly.
Not to be confused with the manufacturer's warranty, a dealership extended warranty is a service contract sold by the dealership. These warranties:
- Are often added to the overall cost of the vehicle at the time of sale.
- May or may not be backed by the automaker.
- Frequently have specific requirements as to where your car is serviced.
Like all service contracts, dealership warranties can differ in what they cover. Make sure you know if it extends bumper-to-bumper coverage past the manufacturer's warranty or if it only covers a portion of the vehicle, such as repairs to the engine and drivetrain.
If backed by the automaker, repairs must usually be made at a franchised dealership. Other stipulations such as scheduled servicing may also be required.
A third-party extended warranty, sometimes referred to as an aftermarket warranty, is a service contract from an independent provider that has no direct business relationship with the auto manufacturer.
Though it can be purchased at any time, it is best to purchase these warranties before the manufacturer's warranty has expired to get a cheaper rate.
Each warranty package will offer different coverages; common coverage options include:
- Please see “Third-Party Coverage Breakdown" below for detailed summaries of these coverage options.
An advantage of third-party warranties is that you often have more choices, which can help drive down the price.
Beware that not all third-party extended warranties are created equally. Make sure the warranty is backed by a reputable provider to avoid scams. If in doubt, check to see if the company backing the warranty is accredited by the Better Business Bureau (BBB).
Third-Party Coverage Breakdown
Below is a basic breakdown of each coverage type listed above. Make sure you read the fine print before you decided on a specific package to get a detailed list of exactly what each option covers.
- Most basic coverage.
- Includes repairs to:
- Major engine components.
- Front and rear drive axles.
- Provides only essential vehicle coverage.
- Repairs to major vehicle systems.
- Coverage for components listed in Bronze plan, PLUS:
- Fuel delivery components.
- Basic electrical components.
- Air conditioning services.
- Combines coverage protections included Bronze and Silver plans, PLUS:
- Braking components.
- Steering components.
- Offers lower-priced plans than Platinum or Titanium options.
- More complete coverage than Bronze and Silver.
- Often helpful for vehicles with over 60,000 miles.
- Includes coverage from Bronze, Silver, and Gold plans, PLUS:
- Suspension components.
- Enhanced electrical components, such as:
- Powertrain control module.
- Anti-theft devices.
- Wiper motors.
- Heating and cooling components.
- Highest protection option.
- Similar to manufacturer bumper-to-bumper coverage.
- Includes coverage from Bronze, Silver, Gold, and Platinum options.
- Covers all parts of vehicle except for:
- Parts listed under Exclusions section of contract agreement.
- Parts that are included under the original manufacturer's warranty.
- Optional coverages, unless options have been specifically purchased.
Additional benefits these extended warranties offer include:
- Paid alternative transportation options if a breakdown occurs, such as:
- Cost of a rental car.
- Public transportation.
- Trip interruption:
- Includes reimbursement if your vehicle breaks down for:
- Food-related expenses.
- Includes reimbursement if your vehicle breaks down for:
- 24-hour roadside assistance:
- Towing and wrecker service.
- Roadside flat tire service.
- Emergency gas delivery.
- Battery jump service.
- Key lockout service.
Costs will vary according to the extent of the coverage and the number of years of the contract.
Deciding which type of extended coverage is best for you can be tricky. Before you choose, take these factors into consideration:
- If the vehicle is still under manufacturer warranty.
- The length of time you plan to own the vehicle.
- You may not need extended coverage if you plan to own the car for less or close to the amount of time left on the manufacturer's warranty.
- If a deductible is required for vehicle repairs.
- Where repairs can be made.
- Dealership warranties often require repairs to be made at the dealership.
- Third-party warranties may need approval before a repair is made.
- What coverage option best suits your needs.
- Financial considerations.
- Vehicle worth.
- If costs exceed the value of the vehicle, coverage may not be necessary.
- Extent of coverage.
- Do you want bumper-to-bumper, or coverage for drivetrain only?
- Who's responsible for paying the bill.
- Some extended warranties require the owner to pay for the entire cost up front and reimburse you later.
- Other extended warranties will pay the repair shop directly.
- If you're planning performance modifications.
- Modifications to the original state of the vehicle may alter or void extended warranties.
- The repair history of the vehicle.
- If the vehicle has had frequent repairs, extended coverage may save you money in the long run.
Once you've done your research, you'll be far better equipped to get exactly the right coverage for your vehicle.