The Difference Between a Warranty and a Vehicle Service Contract
When thinking about buying extended protection on an existing car, your manufacturer’s warranty or a vehicle service contract may be on your mind. While both are helpful, it’s crucial to understand the key differences between the two options.
What is an OEM Warranty?
Typically, an Original Equipment Manufacturer (OEM) warranty covers mechanical failures for a specified time after a vehicle purchase. Used and new vehicles both often come with warranties. However, once the warranty expires, all coverage ends.
What Is a Vehicle Service Contract?
A vehicle service contract is coverage that a customer typically purchases after their manufacturer’s warranty has expired. Vehicle service contracts cover mechanical breakdowns when the factory warranty expires. Similar to warranties, vehicle service contracts cover a vehicle for a specific number of miles or months.
What Do Vehicle Service Contracts Cover?
One key difference between an OEM warranty and a service contract is the type of coverage available. Vehicle service contracts pick up where the manufacturer warranty ends and may include extra features the warranty did not. For instance, your contract may offer roadside assistance, while OEM warranties do not. Most VSC plans cover repairs associated with your engine, transmission, front and rear wheel drive, hybrid/electric vehicle components, air conditioning, and more.
Who Should Consumers Buy a Vehicle Service Contract From?
The best place to purchase a vehicle service contract from is the dealership the vehicle came from. Both customers and dealerships benefit from coverage that continues a relationship. When a customer needs a repair under their vehicle service contract, they can return to the dealership they bought the contract from for service. Dealers benefit from being able to track repairs and needs for better customer service.
It’s also important for dealerships to educate their customers about their coverage options so these customers aren’t lured away by third-party marketers. Many consumers receive robocalls and text messages about vehicle service contracts from third parties after purchasing a vehicle. The companies behind the messages may give the impression they represent a dealership or manufacturer – but actually have no association whatsoever. They use phrases like “Motor Vehicle Notification,” “Final Warranty Notice,” or “Notice of Interruption” to make the offer seem urgent — and to get consumers to respond.
These third-party companies:
- Aren’t working with your vehicle dealer or manufacturer and likely purchased your data from a credit reporting bureau
- Pressure customers to provide personal financial information and a down payment right away
- May not be in business when a customer needs to use their contract – it’s a high turnover business and not reliable
- Limit which repairs are covered, and who can provide the repairs, which can make the contract worthless
What To Know Before Buying a Vehicle Service Contract
A study by Pegasystems Inc. demonstrates that 63% of drivers do not purchase a vehicle service contract, although 60% of drivers believe that these service contracts provided value. Vehicle owners considering buying a vehicle service contract have several factors to consider. Not all vehicle service contracts offer the same coverage, and many plans only cover certain repairs and have certain limitations imposed.
Consumers should consider:
- What repairs and services are covered under the contract?
- Does the contract pay for the full value of the part? Some contracts pay less or partially when the car has high milage.
- Does the contract include car rentals or towing when a vehicle needs to be repaired?
- What labor costs does the plan cover? For instance, if the engine needs to be taken apart to diagnose problems, does the contract cover the costs of the mechanic’s labor to take it apart and put the engine back together? Is the full cost paid or only partial costs?
If a customer buys a vehicle service contract from their dealership, these questions will be answered and lead to a better customer experience.
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