What is Vehicle Service Contract?

A vehicle service contract, often called an extended service plan, is an agreement that pays for covered mechanical repairs after the manufacturer's warranty ends. Unlike an insurance policy, it is a contract to perform or fund specific repairs, and coverage ranges from powertrain-only to near-comprehensive. Contracts specify covered components, term length, deductible per visit, claim procedures, and where repairs may be performed. In Canada, service contracts must be presented transparently in the F&I office, with the price, coverage, and cancellation rights clearly disclosed. Dealers should match the plan to how long the customer intends to keep the vehicle and to the vehicle's reliability profile. A well-explained service contract adds genuine value and can drive service-department retention, since covered repairs bring customers back to the dealership.