Everything you wanted to know about warranties and service contracts but were afraid to ask.

As consumers, we’ve all purchased items like cell phones, TVs or some other electronic device and big ticket items like automobiles and RVs. During this purchase process, your salesperson likely introduced terms to you such as ‘warranty’ and ‘service contract’.  If you are like most people, you think you know what those are but you’re not entirely certain what a warranty really is versus a service contract. The sales person may compound your uncertainty by iterating terms like “extended warranty” and “extended service contract”.  Let’s demystify and simplify this confusion.

Forget about the word “extended” for a moment and concentrate instead on warranty and service contract. These terms are used as if they are interchangeable when, in fact, they are distinctly different. The Federal Trade Commission (FTC) defines the terms quite simply: “A warranty comes with the original price of the product, whereas a service contract costs extra. It is mainly this separate and additional cost that distinguishes a service contract from a warranty.”

What is a Warranty?

A warranty is, generally speaking, protection against any potential manufacturing defects or other forms of original defects in the product. Warranties typically have shorter terms and greater restrictions than Service Contracts.  A service contract, often called a service agreement, is generally broader in scope and allows for regular service on the product. Typically, “extended warranties” and service contracts exclude routine maintenance such as oil changes and tire replacement on your vehicle.

What is a Service Contract?

Service contracts are designed to protect you against unexpected, costly repairs. They are purchased separately from the product and can be purchased at any time. However, the earlier you purchase a service contract in the life of a product, the better coverage (and purchase price) you may obtain.

Why Do I Need a Service Contract?

A vehicle service contract can offer peace of mind and other benefits to owners. Knowing that your repair costs are covered can ease not only your mind but your wallet as well. Your vehicle is a big investment and the longer it stays in great condition, the more value you are likely to retain. Service Contracts are designed to help protect your investment by keeping your vehicle in good working order without you having to incur unexpected repair costs that you might otherwise have difficulty in paying.

Why Do I Need a Service Contract Now When I Still Have a Manufacturer’s Warranty?

The better shape your vehicle is in when you first obtain coverage, the better your rates, or cost to purchase, will be. It actually costs less to purchase a vehicle service contract on a new vehicle than on an older vehicle that has fallen into disrepair. By buying when your vehicle is in the newer condition, you can lock in the cost of the service plan at the best price possible.