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Everything You Need to Know About Auto Service Contracts

At some point, every car owner is faced with unexpected repairs and maintenance costs. While regular maintenance can help prevent major breakdowns, it's impossible to avoid all repair expenses. Auto service contracts, also known as extended warranties, can help you save money and provide peace of mind when unexpected repairs arise. In this article, we'll cover everything you need to know about auto service contracts and how they work.

What is an Auto Service Contract?

An auto service contract is an agreement between the vehicle owner and a third-party provider to cover certain repairs and maintenance services. These contracts are usually offered by dealerships or independent companies and can be purchased at any time during the life of the vehicle. An auto service contract typically covers repairs for mechanical and electrical failures, but some may also include routine maintenance such as oil changes and tire rotations.

How Does an Auto Service Contract Work?

When you purchase an auto service contract, you will pay a one-time or monthly fee for coverage. The length and coverage of the contract will depend on the provider and the plan you select. When a covered repair is needed, you will bring your vehicle to an approved repair facility. The repair facility will diagnose the problem and contact the service contract provider to determine if the repair is covered under the terms of the contract. If the repair is covered, the service contract provider will pay for the repair directly to the repair facility, minus any deductible or out-of-pocket expenses you may have.

Types of Auto Service Contracts

There are two main types of auto service contracts: exclusionary and inclusionary. An exclusionary contract, also known as a bumper-to-bumper warranty, covers all mechanical and electrical components of the vehicle except for specifically excluded items. An inclusionary contract, also known as a stated-component or named-component warranty, covers only the items specifically listed in the contract.

It's important to note that auto service contracts are not the same as car insurance. Auto insurance covers damage or loss caused by an accident or theft, while auto service contracts cover repairs and maintenance related to normal wear and tear.

Benefits of an Auto Service Contract

The primary benefit of an auto service contract is that it can help you save money on unexpected repair costs. Repairs for mechanical and electrical failures can be expensive, and an auto service contract can help cover these costs. Additionally, having a service contract can provide peace of mind knowing that you are protected from unexpected repair expenses.

Another benefit of an auto service contract is that it can increase the resale value of your vehicle. Many service contracts are transferable, meaning that they can be transferred to a new owner if you decide to sell your vehicle. This can make your vehicle more attractive to potential buyers, as they will have the added protection of the service contract.

Things to Consider When Choosing an Auto Service Contract

When choosing an auto service contract, it's important to consider the length and coverage of the contract, as well as the reputation of the provider. Here are some things to keep in mind:

  • Length of the contract: Auto service contracts can range from a few months to several years. Consider the age of your vehicle and how long you plan to keep it when selecting a contract length.
  • Coverage: Read the contract carefully to understand what is and is not covered. Some contracts may exclude certain components or only cover repairs up to a certain dollar amount.
  • Provider reputation: Research the provider to ensure that they have a good reputation for customer service and claims processing.
  • Cost: Compare the cost of the contract to the potential savings on repairs to determine if it's a good value for your money.