My Mechanic Mentioned a Service Contract, What Is That?

A vehicle service contract pays for certain repairs after the vehicle warranty expires. Service contracts can extend the factory warranty or cover regular maintenance. Some buyers like the peace of mind they get from a service contract, while others think they aren’t worth the cost.

Understand what vehicle services cover and how to evaluate if one is right for you. If you have problems with a dealership and their vehicle service contract, talk to a consumer protection lawyer for help.

Understanding Service Contracts

Vehicle service contracts (VSCs) are optional agreements where the service provider covers certain repairs and maintenance. Buyers sign up for monthly service payments for coverage. Service contracts are also called extended vehicle warranties, protection plans, and maintenance agreements.

Service contracts are generally offered by salespersons when you buy a used vehicle. A dealership or independent company is generally the service contract provider. The types of auto repairs covered depend on the individual service agreement.

Make sure you understand the level of coverage and out-of-pocket costs before you decide to buy a service contract. Even if you have the right to cancel the VSC, many car owners report difficulty getting the dealer to cancel the contract or get a refund.

Differences Between Service Contracts and Warranties

A service contract differs from a warranty or insurance. Most new vehicles come with a manufacturer’s warranty. Factory warranties cover the vehicle against mechanical failures and parts defects. The warranty term is generally based on miles and years from the time of purchase. The factory warranty goes with the car. If you sell a new car, the manufacturer’s warranty continues for the rest of the warranty term.

Service contracts pay for repairs after the factory warranty expires. A service contract is not an auto warranty—it’s a written agreement to pay for covered parts and repairs. Service contracts generally don’t transfer if you sell the vehicle.

The service provider or dealership is responsible for paying for repairs. With a warranty, the vehicle manufacturer pays for repairs or replacement. You can generally cancel a vehicle service contract, but you will have to pay for any future repairs. The contract can depend on the terms of coverage, duration, coverage limits, and deductibles.

Types of Repairs Vehicle Service Contracts Cover

Service contracts come in many different types. Bumper-to-bumper service is generally the broadest level of coverage. Most contracts offer lower coverage. Some of the repairs covered may include:

• Powertrain coverage
• Routine maintenance (like tire rotation and oil changes)
• Windshield replacement
• Mechanical breakdown
• Roadside assistance
• Towing
• Rental car reimbursement

Most service agreements have multiple exclusions. You can only find out what they won’t cover by reading the fine print. Breakdown exclusions can include:

• Normal wear and tear
• Failure to follow manufacturer-recommended service
• Pre-existing conditions
• Insufficient fluids, lubricants, and coolants
• Damage by the failure of a non-covered part

Benefits of a Vehicle Service Contract

Some buyers like having the peace of mind of a service contract when they buy a used car. Expensive repairs and replacement parts can be more than the cost of the motor vehicle. A service contract helps car owners avoid the costly surprises of unexpected repairs.

The service contract covering regular maintenance can help car owners keep up with maintenance and preserve the car’s value.

Some service contracts offered by nationwide companies have a wide network of repair shops.

Drawbacks of an Auto Service Contract

Vehicle service contracts come with added costs. You won’t know whether it’s worth the cost until you have a major breakdown and expensive car repairs. Some service contracts only pay for aftermarket parts and charge more for factory parts. Many contracts also come with high deductibles before coverage kicks in.

Your auto insurance company may already cover certain repairs, like windshield replacement. Many drivers already have roadside assistance with their phone provider, insurance company, or auto club.

Contracts can also have several exclusionary terms that may not cover normal wear and tear, vandalism, or damage caused by natural disasters.

Extended Service Contract Robocalls

If you get a robocall or unsolicited text message warning that your service contract is going to expire, it’s most likely a scam. Extended warranty scams are common. They’re just a way to get your money or commit identity theft. Scammers warn you about the high costs of repairs to get you to enter a prompt or give your credit card information over the phone. If you get one of these calls, hang up.

Contract Provider Won’t Pay for Covered Repairs?

Even with a service contract, the provider may deny your claims. They can cite many of the exclusions to deny coverage. If they don’t pay for your repairs, you can appeal to the company for coverage. If they still don’t make the repairs, you can file a complaint with your state attorney general. You can also take the service provider to small claims court for violating your consumer rights.

A lawyer can help you deal with the vehicle service contract provider. They can negotiate for a settlement agreement or pay for the repairs. Your lawyer can also file a lawsuit against the provider for breach of contract. For information about your legal options with a vehicle service contract, contact a local consumer protection lawyer.