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This resource is part of the Innovative Funding Services (IFS) auto finance Library.

Learn Why an Extended Warranty Can Be a Worthwhile Purchase

The purpose of vehicle service contracts is to pick up where manufacture warranties leave off.

A warranty from a manufacturer is essentially a promise that your car is in working order and if it has any mechanical failure or problem (not related to damage) that the manufacturer will cover the repair costs. But manufacturers will only make such a promise for a certain period of time.

When your manufacturer warranty ends, you are on the hook for any issues with your car that require repairs. However, you can purchase a vehicle service contract to protect yourself from any unforeseen tune up needs in the future, which tend to appear after your car’s manufacturer stops guaranteeing its good condition. Generally, you may purchase a vehicle service contract with a car loan (i.e. bundled into the financing) or as a standalone product.

The Benefits of a Car Service Contract

A good vehicle service contract will cover almost any problem with your car that is not related to damage. Such problems can include electrical system failures, seal and gasket issues, and others.

Vehicle service contracts vary in their level of coverage so make sure to review any plan you are considering before buying. Service contracts may offer roadside assistance, towing services, locksmith services, rental services, and a tire coverage benefit. Additionally, some service contracts give you the option to choose your repair shop.

When Can I Buy a Vehicle Service Contract?

You can purchase a vehicle service contract after your car’s manufacturer warranty expires. Sometimes people like to think of these contracts as a “used car service contract” since many people purchase them when buying a used car. But even if you purchased your car new and you have driven it through its manufacturer warranty period, you can still purchase a service contract.

Alternative Vehicle Service Protection Terminology

Vehicle service contracts are sometimes also called “extended warranties,” “maintenance plans,” “service agreements,” “vehicle service protection plans,” and more. Know that many of these terms large mean the same thing, but keep in mind that these plans vary by provider so you should always read and consider carefully whether a given plan is right for you.



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This resource is for educational purposes only. Its content is designed to explain concepts, not to present exact definitions or to reflect how all financial institutions or auto companies conduct business. 

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