An extended warranty and a service contract are very similar products. Both are meant to cover repairs during the first few years after buying a new vehicle. However, an extended warranty is more comprehensive than a service contract, which means it covers more aspects of your car or truck. Extended warranties also have a much longer coverage period than service contracts — typically three to four years compared to one to two years. Both products are intended as additional protection for your investment in your car or truck, so choosing the right one for you will depend on your individual needs and circumstances. If you’t sure which one is right for you, read on for more information on what each product covers and how they can help reduce stress in your car-buying process.

What is an Extended Warranty?

An extended warranty is a service contract with more comprehensive coverage than standard warranties. An extended warranty covers repairs to your vehicle that might not be covered by the standard engine warranty. An extended warranty will typically cover repairs for more than just the engine and drivetrain, but no more than three years after the date of purchase. Extended warranties are generally offered by the car manufacturer or a third-party provider. They are separate from the vehicle sales contract — meaning you can purchase them even if you don’t buy the car outright. Depending on the type of car you buy and its manufacturer, you might be offered an extended warranty as part of the purchase agreement. Or, you might have to purchase one separately.

What is a Service Contract?

A service contract is a product that covers your vehicle’s maintenance and repairs for a set period of time after the expiration of the standard manufacturer’s warranty. Service contracts are typically offered by the car dealership or an independent provider. They are typically offered as part of the purchase agreement, and offer the added benefit of ongoing coverage for a set period of time. Depending on the type of car you buy and its manufacturer, you might be offered a service contract as part of the purchase agreement. Or, you might have to purchase one separately. Unlike an extended warranty, a service contract will not cover repairs related to safety issues, such as a defect in the vehicle’s airbags or seatbelt tensioner. Instead, they will cover repairs that fall under the category of “essential maintenance.” A service contract is typically less expensive than an extended warranty and comes with fewer stipulations.

Which Product Is Right for You?

If you’re buying a new car or truck, an extended warranty or a service contract can help protect your investment by covering repairs that might otherwise be unaffordable. This is especially true if your old car was less than 10 years old and had fewer than 100,000 miles when you traded it in. When shopping for a new car, consider your driving habits and how much you drive per year. If you travel long distances frequently, or you have a family with young children who need to go to school or daycare, you might want to consider paying a little more for a higher-quality vehicle.

How an Extended Warranty Works

When you purchase an extended warranty, the car manufacturer or provider will cover the cost of your repairs. Extended warranties typically cover repairs to the engine and drivetrain, as well as other critical systems. These systems include lights and sensors that trigger an alert if your vehicle is involved in a collision. Extended warranties are usually offered at the time of purchase, or within days of the purchase. The length of coverage can vary from one to three years, depending on the type of car and its manufacturer.

How a Service Contract Works

When you purchase a service contract, the car dealership or provider will cover the cost of your repairs. Service contracts are typically offered at the time of purchase, or within days of the purchase. The length of coverage can vary from one to three years, depending on the type of car and its manufacturer. Like an extended warranty, a service contract will cover repairs that fall under “essential maintenance.” A service contract is typically less expensive than an extended warranty and comes with fewer stipulations.

Which Product Is Best For You?

If you’re buying a used car, an extended warranty or a service contract will not help reduce the risk associated with your decision to purchase an older car. Instead, you’ll need to use your car’s maintenance and check-up schedule to identify problems and schedule repairs before they become more expensive. If you don’t have the time or money to regularly maintain your car, consider leasing it instead. This will help you avoid taking on the financial risk associated with a used car purchase.

How to Decide if You Should Purchase an Extended Warranty or a Service Contract

When deciding between an extended warranty and a service contract, consider this: The average car in the U.S. breaks down once per year, and the average repair costs $1,000. That’s a $12,000 annual average cost for those who don’t purchase an extended warranty. That’s a lot. That’s why so many people choose to purchase an extended warranty to protect themselves from these high repair costs. However, keep in mind that the average car in the U.S. has just 58,000 miles on the odometer and is only 8 years old. If your car is older than that or has more than 58,000 miles on it, an extended warranty might not be necessary.

Wrap-up

If you’re buying a new car or truck, an extended warranty or a service contract can help protect your investment by covering repairs that might otherwise be unaffordable. This is especially true if your old car was less than 10 years old and had fewer than 100,000 miles when you traded it in. A service contract will cover repairs that fall under “essential maintenance,” while an extended warranty covers repairs to the engine and drivetrain, as well as other critical systems. Both products are intended as additional protection for your investment in your car or truck, so choosing the right one for you will depend on your individual needs and circumstances.