Service Contract
A service contract, sometimes called a vehicle protection plan, is an agreement purchased separately from the vehicle that provides repair or maintenance coverage for certain components after the manufacturer’s warranty expires. Unlike warranties, which are included by the manufacturer, service contracts are typically offered by dealerships, manufacturers, or third-party providers.
These contracts vary widely in scope - some cover only major systems like the engine or transmission, while others include comprehensive coverage for electronics, climate control, and roadside assistance. Service contracts can be valuable for buyers who plan to keep vehicles long-term, especially those concerned about repair costs for aging cars.
However, not all contracts are worth the expense, as they often exclude routine maintenance, wear items, and preexisting conditions. Costs may also be inflated when purchased through dealerships compared to third-party providers.
Reading the fine print and comparing multiple options are crucial before committing. Service contracts provide peace of mind but should be evaluated based on the buyer’s driving habits, vehicle reliability, and financial tolerance for repairs.
Example
Paul purchases a used minivan and adds a three-year service contract that covers the engine, transmission, and electrical systems. Two years later, his alternator fails, and the $900 repair is fully covered under the contract.