The Differences Between Extended Service Contracts vs. Warranties

Whenever you buy or refinance a car, you’ll likely encounter talk about factory warranties and vehicle service contracts. While both can help to protect you against expensive car repairs, they do so in different ways. 

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In this article, we’ll help to clear up the service contract vs. warranty dilemma so you can make a confident decision.

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What is a factory warranty?

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A vehicle factory warranty is a manufacturer’s guarantee that a new vehicle will operate as it should for a defined period — often three years or 36,000 miles, whichever comes first. If a covered defect arises before the warranty expires, the manufacturer covers the repair at no cost. For example, if your alternator goes out after one year of owning a new car, the repair may be covered by the manufacturer. 

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Factory warranties typically cover repairs or replacements that result from defects in workmanship, improper installations or mechanical breakdowns that aren’t caused by accidents, lack of maintenance or improper use. Further, they often require repairs to be done at authorized dealerships or service centers using original equipment manufacturer (OEM) parts. 

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While you can’t technically extend a vehicle’s warranty, you can buy a vehicle service contract that offers additional coverage. 

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Pros and cons

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Factory warranties also come with pros and cons. Here’s what you should know. 

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Pros:

• Comprehensive coverage: Factory warranties offer bumper-to-bumper coverage for manufacturing defects for the first few years of ownership.
• Free repairs: If an issue arises that’s covered under warranty, you won’t have to pay to have it fixed. Warranties are included in the price of the vehicle. 
• Increases resale value: A transferable factory warranty can make the car more attractive to buyers if you sell it before the coverage expires.
• Peace of mind: Knowing that major repairs are covered reduces financial stress and unexpected costs.

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Cons: 

• Limited coverage: Factory warranties typically don’t cover normal wear-and-tear items like brakes, tires or routine maintenance.
• Repairs must be done by authorized dealers: You may be required to take your vehicle to a dealership, which can be less convenient than using a mechanic of your choice.
• Exclusions: Warranties exclude certain repairs, such as if damage is caused by neglect, misuse or modifications.
• Time and mileage limits: Once the warranty period ends, you’re responsible for all repairs.

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What is an automotive service contract?

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An automotive service contract, also known as an extended service contract or extended warranty, is an optional plan you can purchase to help cover vehicle repair and maintenance costs for a set period. Offered by vehicle manufacturers, dealers and independent companies, these contracts come with fixed upfront costs that you may be able to split into monthly payments. Additionally, they often include deductibles per visit or repair. 

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While factory warranties come with new vehicles and typically stay in place for a short time, vehicle service contracts are bought separately and tend to provide coverage for longer periods — such as six to eight years and up to around 100,000 miles. They can be helpful when your factory warranty expires or doesn’t offer all of the coverage you need. 

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Note: Vehicle service contracts are sometimes called extended warranties but aren’t “warranties” under federal law. A true “warranty” is included with a vehicle purchase and doesn’t come with an additional cost.  

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Pros and cons

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Here are the main pros and cons of automotive service contracts. 

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Pros:

• Extended savings: The contracts can help you save on car repairs, beyond a factory warranty.
• Additional services: Some contracts include perks factory warranties don’t like towing, rental car reimbursement or coverage for maintenance tasks such as oil changes.
• Flexibility in choosing a mechanic: You may have more freedom in choosing your mechanic. 
• Many options: A range of providers offer vehicle service contracts so you can shop around to find the best fit. 

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Cons: 

• Cost: The cost for coverage can range from several hundred dollars to several thousand, plus deductibles.
• Overlapping coverage: Some contracts duplicate factory warranty coverage, offering little additional benefit if you still have a warranty in place.
• Exclusions and limitations: Not all repairs or parts are covered, so it’s important to review the contract carefully.
• Provider reliability: Some providers have been fined for deceptive practices, making it crucial to research the company’s reputation before purchasing.

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Auto warranty vs. service agreements

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Auto warranties and vehicle service agreements both help to curb the expensive costs that come with vehicle repairs, but they do so in different ways. Below is a comparison of how they differ in terms of cost, coverage and more.  

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How to choose what’s right for you

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So, how to choose — service contract vs. warranty? The good news is you don’t have to. If you buy a vehicle that’s still within the initial factory warranty period, you’ll automatically have protection against a variety of defects. However, once the factory warranty expires, you’re on your own with repair costs and maintenance unless you buy a vehicle service contract. 

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The value a vehicle service contract can provide will depend on the one you choose as they vary greatly from one provider to the next. To find a good fit and reliable provider, shop around and compare options side by side to see which one best fits your vehicle and budget. 

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Not sure where to start? RefiJet offers competitive vehicle service contracts that can be bundled into your auto loan refinancing, helping you stay covered without upfront costs.

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FAQ

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Learn more about auto warranties vs. vehicle service contracts. 

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What is the difference between a warranty and a service contract?

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A factory warranty is a manufacturer’s promise to stand behind its vehicle and fix any defects or malfunctions for a specific period at no additional cost to the owner. A vehicle service contract, on the other hand, requires the owner of a vehicle to pay for coverage in exchange for savings on future repairs and/or maintenance. 

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Can a dealer refuse to do warranty work?

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Dealers will generally help to complete warranty work according to your warranty contract. However, there may be a few exceptions. For example, a dealer may refuse if they find your vehicle is damaged due to something you or a mechanic did, such as improperly installing a belt. Check your warranty terms for details on exclusions and dealer obligations.

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Why might you consider buying an extended warranty or vehicle service contract?

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You may want a vehicle service contract to protect yourself against expensive car-related bills in the future. Similar to insurance, you’re betting that you’ll need to use the contract, and it’ll save you money overall. 

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What is the cost difference between an extended warranty versus vehicle service contracts?

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Extended auto warranties and vehicle service contracts are two different names for vehicle service contracts. Any cost differences between them will depend on factors like the coverage included, the length of the contract and the vehicle being covered.

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Which of the two offers more coverage, factory warranties or vehicle service contracts?

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Factory warranties offer comprehensive, bumper-to-bumper coverage against defects at no additional cost to the owner, but only for a limited time. Vehicle service contracts offer coverage for repairs and sometimes maintenance over longer periods, but the level of coverage varies by provider. The one that offers more coverage will vary by situation. 

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