You have probably heard of the terms vehicle service contracts and auto warranties. Some people even go as far as to use the two interchangeably. While the two policies both shield you from unforeseen breakdowns, they are two very different things. It is in your best interest to know the differences, especially if you are in the market for a new or used car. By the end of this article, you will see the exact difference between the two seemingly similar services.
Service Provider
An auto warranty is provided strictly by the vehicle manufacturer. Providing a warranty is the manufacturer’s way of telling you they are confident in their product. Should any mechanical breakdown happen within the stipulated window, the repairs are done for free. However, the repairs can only be done by the manufacturer or an authorized service center. The service center will, in turn, claim the warranty and receive reimbursement for labor and any materials used.
On the other hand, vehicle service contracts can be provided by different entities. This service can be provided by car manufacturers, dealerships, or any other licensed service providers. Like any other insurance, you pay a monthly premium for the policy to remain active. When something breaks down, you get repairs without additional charge. While some vehicle service contracts allow the owner to seek repairs from a mechanic of their choice, others are more restrictive.
In some cases, the policy may require paying a deductible every time you file a claim. The higher the deductible, the lower the monthly premiums. The choice is wholly left to the car owner. The Federal Trade Commission recommends that consumers carefully read the terms before committing. Consider that there is a chance you may never use the extended warranty.
Extent of Coverage
Manufacturer warranties do not provide blanket coverage. It covers particular aspects of the car. Most warranties only cover the basics, such as mechanical breakdowns, electrical faults, and other safety features. One thing it doesn’t cover is wear and tear since that is a natural process. Sometimes, the warranty may extend to roadside assistance, towing, and routine maintenance.
You will have to pay for any repairs that are outside the coverage. It is also a good idea to take out a vehicle service contract (VSC) to cover anything not included in the warranty. The VSC has more comprehensive coverage. A standard vehicle service contract covers all the basic systems of the car. The upside to extended warranties is that you can choose the amount of coverage you want.
Top tier policies can pretty much cover everything, including damage caused by wear and tear. Most service providers refer to this as bumper to bumper coverage. Additional services may include towing, 24/7 roadside assistance, trip-interruption reimbursement, and even cosmetic repairs. Of course, more comprehensive coverage means higher premiums and deductibles. You should always thoroughly read the contract to know what your policy covers.
Mileage Limit
According to Consumer Reports, manufacturer warranties on new cars run for the first 36,000 miles or three to four years. The coverages expire when you reach the mileage limit or year cap, whichever happens first. Some new vehicles may come with an additional powertrain warranty with a limit of 100,000 miles. This usually only covers the engine and the transmission. You can buy a vehicle service contract to supplement the warranty if you are worried about the limited coverage.
In contrast, vehicle service contracts have no limitation in terms of mileage. Once you buy a policy, you remain covered as long as you keep paying. Unlike manufacturer warranties, there is coverage for both new and old cars. This is important if you are in the market for a used car. In most cases, the manufacturer’s warranty expired years ago.
In such a situation, it is wiser to buy a VSC when purchasing a car. Even if the used car was purchased from a private individual, you could still buy an extended warranty. It will save from future unexpected repairs, which are inevitable with used vehicles. The mileage limit will depend on the policy you choose to buy.
Cost of Coverage
Manufacturer warranties come at no additional cost. Usually, the charge is included in the price of the car. It is essentially a guarantee by the vehicle manufacturer that the vehicle is fit for use for a specified period. A manufacturer acknowledges that there may be a minor mechanical issue, which they offer to fix for free. However, the warranty typically only covers problems that arise from the manufacturer’s mistake.
Damages due to an accident, wear and tear, and lack of maintenance are not covered. Most people find out at the very last minute that they will have to pay out of pocket. The only way to avoid such problems is to buy an extended warranty. However, it is an extra service provided by a third party and comes at a cost. The good news is that the prices are very flexible; they all depend on the policy’s terms.
The price of vehicle service contracts usually depends on the make and model of the vehicle. Some vehicle models are known to have specific recurrent issues. Others are harder to repair since parts may not be readily available. All these factors are considered when deciding your payment plan. The mileage of the vehicle is also considered.
Usually, the cost is spread over monthly payments. There may be a requirement that you make an initial deposit before the policy is activated. Other extended warranties have a limit on how they will spend on any given issue. You may be required to cover the extra cost by paying a deductible. Expect to spend anywhere between $100 and $2,000 per year, depending on the terms of the policy.
Transferability
When buying a new or used car, the assumption is that you will have it for a while. However, you may want to sell the car a few years down the line. When that time comes, you should transfer your policy to the next owner of the vehicle. Usually, manufacturer warranties can easily be transferred since they are tied to the car and not its owner. Provided the mileage limit or the coverage has not been exceeded, the warranty will remain active regardless of who owns the vehicle.
Unlike warranties, vehicle service contracts are a little tricky when it comes to transferability. The terms of the service contract have to be clear that it’s transferable; otherwise, it could be canceled when selling the car. Carefully read through the contract before signing to make sure that is the case. If it’s not, insist on a policy that allows you to transfer the extended warranty.
The good news is that most extended warranties can be transferred from one owner to the next. This adds value to the car should you decide to sell. The new owner will feel at ease, knowing any unforeseen breakdowns will be repaired at no extra cost. However, there is usually a transfer fee involved. But that’s a small price to pay for security and peace of mind.
As you can see, there are major differences between vehicle service contracts and auto warranties. Make sure you read the fine print and understand what is covered under each before making a decision between one or the other.
