Vehicle Service Contracts: Know What You’re Getting into Before You Sign


The Vehicle Service Contract business is a burgeoning industry, with nearly 250 million service contracts are sold each year. But with that growth has come an increase in customer service and sales practice issues for some companies in this industry.

According to a recent study done by the BBB of Eastern & Southwest Missouri & Southern Illinois, there has been an alarming increase in complaints about companies that sell vehicle service contracts to consumers nationwide.

Marketing tactics used by some in the industry have been called into question by consumers, law enforcement, and regulatory agencies.

Some companies utilize U.S. mail to send materials to consumers informing them that their manufacturer’s service coverage may be about to expire. Some companies also use electronic media, television, and radio ads that feature influencers who tout the product and its ease of use to promote the service contracts. Some companies have been accused of using robocalls to bombard unsuspecting consumers with offers for their services.

The FTC advises that many auto service contract offers may not be from companies associated with the car dealer or manufacturer. Consumers have also told BBB they believe the mailers and commercials are misleading. Vehicle repairs they believed would be covered under policies purchased through the vehicle service contract marketing companies are sometimes later denied by policy administrators, which are separate companies. As a result, consumers may spend hundreds or thousands of dollars on repair costs they thought were covered under their policies, in addition to the vehicle service contract coverage cost.

How to Avoid Losing Money on A Vehicle Service Contract:

  • Do your research. Before paying any money, research the administrator and marketing companies. Check the company’s BBB Business Profile at or call your local BBB.
  • Make sure you need it. Compare the contract with the manufacturer’s warranty. New vehicles come with a manufacturer’s warranty that usually lasts for a minimum of three years or 36,000 miles. A vehicle service contract likely won’t provide benefits until a manufacturer’s warranty expires.
  • Do the math. Before deciding whether to invest in a vehicle service contract, figure out how much it is going to cost. If you pay $100 a month for 24 months, that’s $2,400. Is your vehicle worth that much? Would it be advantageous to regularly set aside that money to put in a “rainy day” account for your vehicle? A Consumer Reports study found 55 percent of those who bought policies never used them. The study found the median price for the polices was $1,214 and the median out-of-pocket savings on approved repairs was $837, a loss of $377 to the policy holder.
  • Ask questions. If you decide to call a company, make sure to ask who administers the contract as that company will decide whether any claims will be approved. Research the company as well and ask for a copy of the contract before agreeing to terms of the deal.
  • Watch out for Exclusions. “Few auto service contracts cover all repairs and maintenance. Watch out for exclusions that deny coverage for any reason. For example, if the contract says only “mechanical breakdowns” will be covered, problems caused by normal wear and tear may be excluded.
    • Service contracts also often limit how much they’ll pay for towing or related rental car expenses.
    • If the engine has to be taken apart to diagnose a problem, and during the process the mechanic discovers non-covered parts that need to be repaired or replaced, you may have to pay for the labor involved in the tear-down and re-assembling of the engine.
  • Depreciation. You may not have full protection even for parts that are covered in the contract. Some companies use a “depreciation factor” in calculating coverage: the company may pay only partial repair or replacement costs based on your car’s mileage.” FTC

Sources:, BBB of Eastern & Southwest Missouri & Southern Illinois, FTC: United States Federal Trade Commission, – not subject to copyright protection. 17 U.S.C. 403., Service Contract Industry Council (SCIC).

For more details on the BBB study check out, Vehicle Service Contract Industry: BBB Study Reveals How This Complex Business Model Leads to Consumer Complaints When Marketers’ Promises Giveth and Administrators Taketh Away by the BBB of Eastern & Southwest Missouri & Southern Illinois.

Resources for those who believe they were defrauded by a VSC company may register complaints at:

  • Better Business Bureau: Visit to file a complaint or call your local BBB.
  • Federal Trade Commission: Visit or call 877-FTC-HELP (877-382-4357).
  • State Attorney General’s Office: Contact the attorney general’s office for the state in which you live and where the business is located.
  • U.S. Postal Inspection Service: Visit regarding mailed solicitations.

Visit the BBB Auto Resource Center, your one-stop-shop for all things auto. If you’ve been the victim of a scam, report it to BBB Scam Tracker. To find a business you can trust, check out

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