Extended warranty vs service contract.
In plain English
These two sound alike and are often confused on purpose. A true extended warranty extends the original manufacturer's warranty and is backed by the maker. A service contract, sometimes marketed as an extended warranty, is a separate agreement, frequently from a dealer or third-party company, that pays for certain repairs for a period. Both are optional add-ons with exclusions, deductibles, and claims processes, and both are profitable for the seller, which is why they are pushed hard at checkout. The Federal Trade Commission notes that many go largely unused and that manufacturer coverage may already apply.
01Why it matters
These add-ons are high-margin and heavily pitched, so knowing that a service contract is not the maker's warranty, and often overlaps coverage you already have, helps you avoid paying twice.
02The math, step by step
A dealer offers a 2,000 dollar service contract on a car that still has factory powertrain coverage. Invested at a 7 percent long-run return instead, that 2,000 dollars would grow to roughly 15,000 dollars over 30 years, and many such contracts are never fully used.
03What this is NOT
A service contract is NOT a manufacturer's warranty. A warranty comes from the maker and is included; a service contract is a separately sold agreement, often from a third party, with its own terms and exclusions.
04Receipts
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