Service Contract vs. Out-of-Pocket Repair Cost Calculator
Compare the total cost of purchasing a service contract against paying for repairs out-of-pocket over a specified period. Enter your expected repair frequency, average repair costs, and service contract details to see which option saves you more money.
Formulas Used
Out-of-Pocket Cost (Year y):
OOPy = Repairs/Year × AvgRepairCost × (1 + rrepair)y−1
Service Contract Cost (Year y):
Premiumy = AnnualPremium × (1 + rcontract)y−1
UserPaysPerClaimy = min(RepairCosty, Deductible) + max(0, RepairCosty − Deductible) × (1 − CoveragePct)
ContractTotaly = Premiumy + Repairs/Year × UserPaysPerClaimy
Total Costs over N Years:
TotalOOP = ∑y=1..N OOPy
TotalContract = ∑y=1..N ContractTotaly
Savings = TotalOOP − TotalContract
Break-Even Year: The first year in which cumulative contract costs ≤ cumulative out-of-pocket costs.
Assumptions & References
- Repair frequency is assumed constant each year (number of repairs per year does not change).
- Repair costs grow annually at the specified repair inflation rate, compounded year-over-year.
- Service contract premiums grow annually at the specified contract inflation rate, compounded year-over-year.
- The deductible is applied per claim (per repair event), not annually.
- Coverage percentage applies only to the portion of repair cost exceeding the deductible.
- If a repair cost is less than or equal to the deductible, the contract pays nothing for that repair.
- No time-value-of-money (discounting) is applied; all costs are in nominal dollars.
- The model does not account for claim limits, exclusions, or waiting periods that may exist in real contracts.
- Reference: Consumer Financial Protection Bureau (CFPB) guidance on extended warranties and service contracts — consumerfinance.gov.
- Reference: Federal Trade Commission (FTC) — "Warranties" consumer guide — consumer.ftc.gov.