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Car warranties can be confused with vehicle service contracts (VSCs), in part because a VSC is often called an extended warranty. Though they’re both called warranties, they provide different types of coverage from different sources.
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A true car warranty is automatically included with a new car and provided by the vehicle manufacturer. It promises that the vehicle doesn’t have any defects, and that the manufacturer is responsible for paying for repairs if anything goes wrong for a set period of time or mileage.
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An extended warranty or VSC is an optional contract you can purchase from a dealership or third-party company. You pay a premium to have certain repairs covered for a set period of time or mileage. You’ll typically pay a deductible per repair, and you might have to pay a mechanic first and then submit a claim for reimbursement.
It’s important to know the difference between a true car warranty and an “extended warranty,” because the two are regulated differently by the government. An extended warranty is actually classified as a type of insurance or service contract, not a warranty.
How can I tell the difference between a car warranty and a VSC?
There are a few key factors that can help you determine whether your warranty is built-in or optional:
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Car Warranty
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Vehicle Service Contract (VSC)
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Called
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Full warranty, auto warranty, manufacturer’s warranty or factory warranty.
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Extended warranty, auto service contract or mechanical breakdown insurance.
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Provider
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Original manufacturer (the company that made the vehicle).
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Third-party companies or dealerships.
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Cost
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Included in the car’s purchase price.
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An additional, separate cost, charged upfront or monthly.
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Timing
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Starts when the car is sold brand-new for the first time and typically lasts three years.
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Can be purchased anytime (even for used cars).
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Regulation
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Governed by federal law through the Magnuson Moss Act.
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Regulated as service contracts or insurance. Can vary by state.
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Flexibility
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Usually requires repairs at the dealership.
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Often allows repairs at any certified shop.
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Do I need a car warranty and a VSC?
VSCs are meant to extend coverage after your factory warranty expires, so you don’t need both at the same time.
A new car factory warranty typically lasts 36,000 miles or three years, whichever comes first. Some cars also include “powertrain” warranties that cover components like the engine and transmission for longer periods of time, typically five to 10 years.
Whether or not you also need an “extended” warranty depends on your car’s condition and age:
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If your car is brand-new, you’re already covered. You don’t need to purchase another warranty.
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If your factory warranty is about to expire, consider shopping around for a VSC. A VSC is most helpful if you plan to keep your car for a long time and the car model has a known history of expensive electronic or mechanical issues.
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If you bought a used car, consider purchasing an extended warranty if you’re not sure if you can handle unexpected repair costs.
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Nerdy Tip
Check if a VSC is “transferable.” If you sell your car privately later, being able to hand over a service contract can significantly boost your car’s resale value. And if you’re buying a used car, check whether it comes with a VSC or any time left on the original factory warranty.
Is a service contract the same thing as prepaid maintenance?
To make things more confusing, some dealerships also offer “service contracts” that allow you to prepay for regular car maintenance tasks like oil changes and air-filter replacements.
These prepaid services are different from the mechanical issues that a VSC covers. They might include an oil change every 5,000 miles, for example, but won’t cover any breakdowns or replacement parts if something goes wrong.
In the car warranty industry, similar names can mean very different coverage. Always request a sample contract to make sure you know exactly what you’re getting. Dealerships might slip in a service contract to your purchase.
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