Vehicle service contracts are legal agreements between a seller and buyer, stating that the seller will provide or pay for certain repairs, should they be needed on a vehicle for a specific period of time or distance. The seller, in this case, refers to the entity selling the contract, which may be different than the dealership or person selling the vehicle. Typically, vehicle service contracts extend for a period of years, miles, or kilometers, and expire whenever the first threshold is crossed.
Buyers considering vehicle service contracts should keep in mind that not contracts are not always needed, and some things may be duplicated in a manufacturer's warranty, which is generally included in the price of a new vehicle. Service contracts generally do not cover routine maintenance such as oil changes and new tires. Some may include provisions for tire damage caused by hazards on the roads. Moreover, service contracts may only pay a certain percentage of some repairs.
Often, vehicle service contracts are only good during a certain time frame. For example, a contract may offer protection for five years or 50,000 miles (80,467 kilometers), whichever comes first. Any breakdowns that occur after this time period will not be honored by the contract seller.
Some companies may offer to extend the life of vehicle service contracts approaching the expiration date, especially if the claim history has been favorable, or if they are comfortable with the type of car being driven. These contracts generally are for a period of time less than the first contract, but the price could be the same or even higher. The reason for this is older vehicles tend to have more things go wrong more often. Therefore, the contract seller tries to provide some protection against a potential loss.
In addition to the time and distance driven, a number of other situations could void vehicle service contracts. Not performing necessary maintenance, such as oil changes, is one example. This typically only applies, however, to maintenance that would likely involve the damaged component. For example, the seller of a service contract generally cannot refused to pay for repairs to a leaky radiator just because an oil change schedule has not been strictly followed. If there is engine damage due to lack of proper lubrication, that repair could be refused, however.
Some individuals or entities selling vehicle service contracts may use terms standard in the industry, but unfamiliar to many people. For example, a bumper-to-bumper warranty or service contract, sometimes referred to as total coverage, covers almost anything that could go wrong with the entire vehicle, such as a window handle breaking, for example. Drive train warranties or protections usually cover only engines, transmissions, and drive axles.