W means What’s up With Extended Warranties?
Personal Finance from A to Z
Eileen St. Pierre, The Everyday Financial Planner
When I married a man from the Midwest, I did not realize that implicit in my wedding vows was that any item we purchased would be kept as long as it could be repaired. Only then, after determining its spare parts value, could we look into replacing the item. It must be a good policy – we’ve been happily married for over 21 years.
Whenever a salesperson asks us if we want to purchase the extended warranty for a product, we just chuckle and say no. They are a waste of money. According to Consumer Reports, stores keep 50% or more of what they charge for the extended warranty. They make more money off the extended warranty than from selling the underlying product.
Here are some other things you need to know:
- Repairs may be already covered under the manufacturer’s warranty. The extended warranty may overlap the manufacturer’s protection so you would be paying for protection you already have.
- Odds are the product will not break down within the plan window.
- Repairs are not that costly. Ask yourself how many times the product has to be repaired for costs to exceed the price of the extended warranty.
- Consumer products depreciate in value. Do you really want to shell out money to repair or replace a product that will be technologically obsolete in a few years?
- If you complain to the manufacturer directly, they may cover out-of-warranty items just to keep you from complaining about them on Facebook.
- Check with your credit card company – they may automatically extended the manufacturer’s warranty.
- Depending on how the product is damaged or broken, it may be covered under your homeowner’s or renter’s insurance policy.
- You may have other warranty rights under state law. States require companies to stand by the products they sell.
- Beware the fine print and exclusions in any extended warranty plan.
Here is what you should do instead:
- Put the money you would have paid for the extended warranty into your emergency savings fund. That way you will have the money down the road to pay for any repairs.
- Spend more time researching the products you buy. Look at the customer reviews to get a sense of the reliability of a product. We’ve changed a few buying decisions based on other customers’ experiences.
- Read the manufacturer’s warranty before purchasing the product. If too many people buy the extended warranty, the manufacturer may decide to reduce their standard warranty coverage.
- Make sure you know the retailer’s return policy – especially products purchased online.
So what’s up with extended warranties? Salespeople will tell you that without one, you’re playing Roulette with your money. Since I married a man that can fix anything, I’m prepared to take the gamble.
Visit my Basic Financial Management page for more budgeting tips.