Extended Car Warranty or Vehicle Service Contract

Toco Joe from Toco Warranty explaining the difference between a vehicle service contract and an extended car warranty

Learn about these different labels and what to consider before buying additional coverage.

When it comes to protecting your vehicle, you have car insurance in case you get into an accident. But what if you need a new transmission? What if your engine needs work? Unless you’ve got a mechanic friend who just happens to have all the right parts laying around (and some free time), you’re going to be stuck paying for it out of pocket if your vehicle isn’t under manufacturer's warranty.

That’s where a vehicle service contract comes in.

In simple terms, a service contract is a promise to pay for certain repairs or services on your vehicle. However, there’s still a lot of confusion about what a vehicle service contract is and how it relates to the term “extended car warranty.”

We’re here to help explain.

Extended Car Warranty or Vehicle Service Contract?

After your original manufacturer’s warranty runs out, you may want to help protect yourself from the cost of an unexpected vehicle breakdown by buying additional coverage.

Products offered to supplement your manufacturer’s warranty are sometimes mistakenly referred to as extended car warranties. This type of coverage doesn’t technically extend the coverage of your manufacturer’s warranty, however – it’s actually a new contract between the contract provider and the consumer. As such, a more accurate label is vehicle service contract.

This type of coverage may differ from a manufacturer’s warranty in the repairs that it covers and in coverage limits. Vehicle service contracts also often include additional services like roadside assistance.

New Car Warranties and Vehicle Service Contracts

Typically a manufacturer’s warranty offers basic coverage for at least three years or 36,000 miles — whichever comes first. This is often referred to as a bumper-to-bumper warranty. Some new vehicles may also come with a powertrain warranty of up to 10 years or 100,000 miles — but these usually only cover the engine and transmission.

If you’re buying a new car, many dealers will also offer to sell you supplemental coverage over and above the basic warranty. As this coverage isn’t part of the original manufacturer’s warranty, it’s considered a vehicle service contract.

If your manufacturer’s warranty is set to expire in the near future (or has already expired), you may want to look into the benefits of a vehicle service contract.

Another situation where you may want to look into purchasing a vehicle service contract is when you’re buying a used car — whether through a private seller or a used car dealer. While a used vehicle may come with some sort of existing coverage, that’s definitely not a given.

If you’re buying a used car “as-is” (which means the seller takes no responsibility for any repairs or parts that might be needed), you’re going to have to pay for any repairs out of pocket. By pairing a vehicle service contract with your used car purchase, you can avoid the cost of any covered repairs that might spring up in the future.

What’s Covered by a Vehicle Service Contract?

Most vehicle service contracts will include a section listing the specific parts that are covered under your contract (and the circumstances under which those parts are or aren’t covered). They may list out coverages in sections based on different parts of your car (e.g., the engine, transmission, air conditioning, drive axle, etc.).

Another important area of a vehicle service contract to review is the exclusions section. This is where you’ll find a list of all the parts and services that ARE NOT covered under the contract. In addition, most vehicle service contracts don't cover pre-existing conditions, so you shouldn't expect help paying for a problem you already have.

Since vehicle service contracts can vary widely based on the year, make, model and mileage of your car (as well as a variety of other factors), it’s important to read your contract closely to make sure you understand what’s covered and what isn’t. Very few service contracts cover all repairs1, so keep that in mind before making a purchase or filing a claim.

Mechanical Breakdown Insurance

Another type of vehicle breakdown coverage is mechanical breakdown insurance (MBI). While this type of coverage is similar to those mentioned above, the difference is that mechanical breakdown insurance is actually an insurance product as opposed to a warranty or service contract.

Depending on your state, and its regulatory approach to such products, you may be offered MBI as an alternative to a vehicle service contract.


When it comes to your vehicle, you just want the peace of mind that comes from knowing you're protected in case of a covered car repair. But with so many different terms being used to describe very similar products, it can be tough for consumers to make sense of it all.

At the end of the day, it's up to you to decide when and where to purchase a vehicle service contract. These days, it's easy to compare providers, coverage options and prices to make sure you're getting the right coverage — all from the comfort of your home.