Extended Warranty - Deal or No Deal?

If you’ve bought anything electronic from a chain store like Best Buy, Circuit City, Staples, etc, you were asked (repeatedly) to purchase an “extended warranty”, aka a service agreement, service contract, or maintenance agreement. Hopefully you declined but if not, or are tempted to do so in the future, there are some disturbing facts that every knowledgeable consumer should know.

Retailers forcefully encourage you to buy these extended warranties because they are cash cows. Stores keep 50 percent or more of what they charge for these warranties. They make a better profit on the warranties than they do selling the actual product. Consumer Reports feels so strongly that extended warranties are a bad deal and that consumers are being misled about them that in 2005 they took out a full-page ad in USA Today to warn shoppers.

Extended warranties are notoriously bad deals for the consumer since most electronics either will fail early, while still under the manufacturers warranty, or will have a long life, living well beyond the extended warranty period. If the product does fail, the repairs normally cost about the same as what was paid for the extended warranty.

Should your item break while covered by the service plan, you have no leverage with the repair company since you have already ‘paid’ for the service.

Not only will you probably have to wait for it to be fixed but you will not be the one who determines how it gets fixed or who does the fixing.

Extended warranties are not only are a waste of money, when you do need to use them they just add to your frustrations.

Some alternatives you may want to investigate:

Check your credit card.
Find out if your credit card provides similar coverage. Most gold and platinum cards typically lengthen the original manufacturer’s warranty by as much as one year.

Compare what the retailers offer.
Some retailers might extend the warranty. Costco no longer has their ‘replacement for life’ policy but require most of their suppliers to extend the manufacturer’s warranty to 2 years from the date of purchase.

Shop around.
If you feel you must buy the extended warranty, do some comparison shopping. Not only do extended warranties vary in length and terms, you can always attempt to negotiate a better price.

You can pity the salesperson who is trying to sell you a warranty. Their job performance is measured on how many extended warranties they sell. If they do not meet their quota, they could loose their job. But that is a reason to feel sorry for them, not a reason to buy the warranty.