By Joe DiFeo 

Automotive Warranties and Service Contracts Explained


November 1, 2018 | View PDF

Are you comparing warranties on different new cars, trying to figure out what is covered on a used car warranty, or considering purchasing a service contract on a car you are buying or already own? I hope to clear up some common areas of confusion and technical terms for you. Here we go!

First off, let’s clear up the difference between a warranty and a service contract, as they are often used interchangeably when they shouldn’t be. In a nutshell, there is no charge for a warranty while a service contract is purchased. Both cover mechanical repairs on the vehicle due to defects and failures.

What is covered?

The warranty with a new car is typically “bumper to bumper.” This “comprehensive” coverage covers all elements of the vehicle other than a small list of mostly wear and tear items. Comprehensive coverage is also available through a service contract. Powertrain coverage is limited to engine, transmission, and drivetrain – the most expensive systems to repair or replace. Between these two levels there are service contracts that add other systems such as steering, electrical, and air-conditioning.

When does coverage end?

The coverage time and miles expiration can be calculated from either date of purchase or original in-service date. If calculated from the purchase date, 2-year 24,000 mile coverage would give expire 2 years from the date of purchase or the odometer reading at purchase plus 24,000 miles, whichever comes first. If calculated from in-service date, a 7-year 75,000 mile service contract would expire 7 years for the original purchase date – not the date of service contract purchase – or 75,000 miles on the odometer – not the odometer reading plus 75,000 miles. The in-service date can be found on the Carfax Vehicle history report. Make sure you get clarity on which expiration calculation method is used for a service contract you are considering!


The deductible is the portion of the repair that you will be responsible for. Deductibles typically range from zero to $300. You can choose your deductible on most service contracts, and as the deductible goes down the cost of the service contract goes up. A special case is the Disappearing Deductible. The magic in this one consists of paying zero deductible if you have the work done at the selling dealership. If the work is done somewhere else the normal deductible applies. This is a great choice if you live near the dealership you are purchasing the vehicle and service contract from.

Maintenance Requirements

Warranties and service contracts usually stipulate that all manufacturer recommended maintenance be complete according to schedule. Although they do not verify this for most manufacturer warranty or service contract claims unless there is evidence of neglect, it is a good idea to keep up with your maintenance, and even better to maintain at the dealership representing the make of your car. Certain warranties – usually the lifetime engine warranty variety – stipulate that all maintenance must be completed at the selling dealership. You will want to review what these requirements are to make sure this makes sense for you.

You probably receive many mailers soliciting you to purchase a service contract. These 3rd party companies get their lists from registration data. Be careful! Some service contracts severely limit the amount that can be paid out over the course of the contract or over a specified time period. In addition, when it comes time for your claim the company may make it very difficult to get the claim approved. I may be biased, but I sincerely believe that you are better off purchasing from your dealer as they have a relationship with both you and the service contract company and can be a good advocate when it comes time to get a claim approved.

I hope I helped clear a few things up for you. Please reach out with any other questions and do stop by Volkswagen of St. Augustine to pick up a free copy of my book and check out Volkswagen’s People First Warranty – America’s Best!

Joe DiFeo operates Volkswagen of Augustine, the newest New Car dealership in St. Augustine and one of eighteen DiFeo family dealerships on the East Coast. This article was excerpted and adapted from his book– The Insider’s Guide to How and Where to Buy a Car, Strike a Deal at the Dealership. You can find it on Amazon or better yet stop by Volkswagen of Saint Augustine for a free copy!


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