What is an Auto Warranty?

Auto warranties as a general rule tend to be a larger investment and as such, come with a degree of risk — if you don’t know what you are getting into. That being said, with a little research and the right advice, it’s a great feeling knowing you are protected should your vehicle break down. We’ll be covering a lot of the elements and nuances of the various warranties in future articles. For today, let’s start off by defining exactly what an auto warranty is.

According to our friends over at Auto Warranty Research, an auto warranty is:

“An extended service contract that agrees to pay claims for mechanical failures and breakdowns. Also know as a Vehicle Service Agreement, Extended Service Agreement, Mechanical Breakdown Agreement, or Extended Warranty. This type of policy is intended to protect a consumer from paying for unexpected vehicle expenses.”

As has been previously stated, there are new federal and state laws on the books regarding terminology used in the industry, apparently in an effort to clear things up for unwary consumers.

The following is an excerpt from the FTC website regarding Auto Service Contracts:

“A service contract is a promise to perform (or pay for) certain repairs or services. Sometimes called an “extended warranty,” a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the original price.

The separate and additional cost distinguishes a service contract from a warranty.”

Regardless of what it’s called, the concept remains the same; you enter into an agreement with a company who agrees to pay for certain repair bills on your vehicle in the future, in return for an investment today. Much like auto insurance, by paying a smaller manageable amount up front, you have the peace-of-mind and protection against the possibility of much larger and potentially devastating bills at a later date.