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The Difference Between a Manufacturer's Warranty and a Vehicle Service Contract

At the Vehicle Protection Association, our goal is to make sure consumers understand vehicle service contracts and how they work.

One of the easiest mistakes to make is confusing a service contract with a car warranty.

Although they are similar in some respects, the two offer very different types of coverage and come from very different sources.

Simply put, a Manufacturer’s warranty is coverage you receive when purchasing a new vehicle that comes directly from the manufacturer of that vehicle. This type of coverage is included in the purchase price of the vehicle and is designed to cover defects and problems that may have arisen during the design and/or manufacture process.

A vehicle service contract, on the other hand, is offered by a third party that is unaffiliated with the automotive manufacturer. It is designed to cover the costs of vehicle repair after the car warranty expires or to cover repair and replacement items that are not covered by the warranty while the warranty is active.

Typically, when you purchase a new car, your manufacturer’s warranty will last for a set amount of time. Once this warranty expires, if you still want coverage of repair costs for your vehicle, you will need to purchase a vehicle service contract or an extended warranty from the manufacturer/dealer.

When you purchase a vehicle service contract to protect your car, you are paying in advance for potential repairs down the road. In fact, vehicle service contract holders frequently receive repair reimbursements in excess of what they pay for the service contract. This is similar to home insurance and medical insurance in that you are, in effect, protecting yourself from having costs that you simply cannot afford.

Though different contracts have differing levels of coverage based upon the terms and conditions of each policy, parts, labor and/or sales tax are usually covered when a repair is needed...usually in excess of the contracted deductible amount.

In addition, vehicle service contracts can usually be purchased on any vehicle at any time (given reasonable time and mileage limits) whereas a manufacturer’s warranty is only applied to new cars – unless a used car still has remaining time on that warranty – and often may not be repurchased or extended.

Finally, a manufacturer’s warranty can only be serviced at a dealer franchised by the manufacturer. A vehicle service contract can be serviced at any repair shop of your choosing, unless limited by the contract.

When you purchase your vehicle service contract, be sure to fully read and understand the terms and conditions of the contract. We have also put together a list of questions to ask when purchasing a vehicle service contract as well as frequently asked questions.

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