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.

In most states, the extended warranty service contract is not considered insurance and is not regulated by the insurance department. It is simply a contract between the dealer and the car buyer and is covered under contract law. On the other hand, Service Contract Reimbursement Policy (SCRIP) is considered insurance by most states and is regulated by the various insurance departments). If the dealer chooses to sell an independent Third Party Administrator (TPA')s Vehicle Service Contract (VSC), the dealer needs to assure himself that the TPA will be there to fulfill the promises made to the consumer. The consumer also must satisfy himself that should he move from the area or the dealer goes out of business, covered repairs wilt still be made. The TPA must therefore show that he is secure; most TPA's, through an insurance company, therefore provide a SCRIP to the dealer. This SCRIP provides a guarantee to the dealer and the consumer that if a covered repair is necessary it will be done, either at the selling dealer or at an authorized repair shop.