Skip the Extended Warranty and Save Yourself Some Money
You’re happy about your new purchase. Can’t wait to get it home and hooked up. It’s got all the bells and whistles you wanted, and you know it’ll make your life easier.
But, just as you’re about to complete the sale, the salesperson asks, almost casually, “Would you like the extended warranty? It’s only X amount, and covers all major repairs.”
Sounds like a steal, right? If something goes wrong, you just have to send it back and it’ll be fixed at no charge to you.
Before you agree, let Billshark give you a little insight on service contracts, also known as extended warranties.
In general, the experts advise skipping them altogether. Although you’ll sometimes see strident online testimonials from people who were “so glad” they had one when their such-and-such broke down and they got it replaced for free, the chances that you’ll get your money’s worth from an extended warranty are slim.
For one thing, the “extended warranty” typically begins during the same time period when the manufacturer’s warranty is still in effect—usually the first year—so that first year of coverage is a waste to begin with.
For another, data from Consumer Reports (CR) show that products seldom break within the extended warranty window.
Finally, if you paid by credit card, many of them automatically provide free warranty coverage up to a year after purchase.
CR also points out that it’s a costly proposition to attempt to insure every electronic product you buy.
“You can insure your life against every possible calamity, but you’ll go broke in the process,” Anthony Giorgianni, associate finance editor at CR, told The Washington Post. “You are paying for something in advance with the hope that they’ll cover you when something goes wrong, but you may not need the service, or it may not be available.”
The Post noted that the nearly one-third of consumers who purchased extended warranties for such items as TVs, cellphones, computers, and appliances have turned extended warranties into a $40 billion industry.
In fact, many stores can make as much as a 50 percent profit on these service contracts, a much higher profit margin than on the actual products themselves. In addition, many of these warranties are administered by third parties who have nothing to do with either the store or the manufacturer, and may require you to activate the manufacturer’s warranty before they’ll honor the extended warranty. Other times, they often contain so many exclusions, deductibles, and fees in the fine print that they are rendered practically worthless.
Does that mean you’re at the mercy of the store or manufacturer when you buy something? No. First of all, the Consumer Rights Act of 2015 already provides you a certain amount of protection. It says that products you buy should perform as intended, and should last a reasonable length of time, unless you buy the item “as is.” (And beware of doing so for any major purchase.)
Here are some things you can do that are smarter than buying an extended warranty.
1. Don’t buy a lemon in the first place.
Do your homework before making a major electronic or appliance purchase. Check online for reviews of the product, especially noting comments and history regarding the durability of a product. Stick with reputable brands. Even if something is new to the marketplace, if it came from Apple or Samsung, for example, you know the company has a good reputation to uphold.
2. Check with the manufacturer.
If your item breaks down in an unreasonably short timeframe, go back to the company that made the product. If it’s a reliable company, it will want to protect its reputation and will often stand behind its products (i.e., help keep you as a satisfied customer). Especially in these days of ubiquitous online reviews, no major manufacturer can afford to have a large number of dissatisfied purchasers.
3. Be your own warranty company.
Whatever the cost of the warranty, take that money and put it into a designated repair savings account. Most of your purchases won’t break down before you’re ready to replace them, and if one of them does, you’ll have the money to repair it.
And to help protect your money in other ways, let Billshark review your bills to save you hundreds, even thousands of dollars a year!