Extended warranties are regularly offered on some of the most expensive products we buy. A new computer, a used car, a fancy refrigerator.
They’re presented as the prudent thing to. What’s a few extra bucks in return for peace of mind that your purchase is protected?
But consumer advocates widely say those extended warranties — or, more accurately, service contracts — are almost universally an unwise investment.
They’re profit centers for companies, but rarely pay off for consumers.
“In general, extended warranties are just a way for the retailer to make extra profit from your purchase. They’re really probably not necessary and not worth the money you’re paying for them,” says Susan Grant, director of consumer protection and privacy at the Consumer Federation of America.
Say you’re looking at a 13.3-inch Lenovo touch-screen laptop at Best Buy. The laptop is currently advertised at $749.99. A one-year Geek Squad Protection Plan costs $149.99.
Lenovo already offers a limited one-year manufacturer’s warranty covering parts and labor on that laptop. While it’s true that the Geek Squad plan would add some additional coverage, it also would increase your total purchase price by 20 percent.
There are certainly no guarantees in life, but experts say it’s unlikely the economics on those types of plans will work out in your favor.
“There’s no way of knowing whether you’re ever going to need it, and chances are you won’t,” Grant says.
There are other (often free!) ways to protect yourself.
Many credit card companies offer built-in protection and warranty extension as a standard cardmember benefit.
Both Discover and Mastercard, for example, will double a manufacturer's warranty for up to one year of additional coverage. Those are no-annual fee cards, so if you pay off the purchase in full on your monthly statement, you’ve essentially bought yourself another year of warranty for free.
The specifics of coverage vary, so read up on your cardmember agreement.
Consumers might be protected even if their product doesn’t have a specified warranty or that warranty period has passed.
“Just because an expressed warranty is expired doesn’t mean you don’t have implied warranty,” says Tony Giorgianni, an associate finance editor at Consumer Reports.
Companies have an obligation to guarantee consumer products are free from substantial defects and will function as they were meant to for a reasonable time. Those exact circumstances can vary by state, but they’re an often overlooked protection for consumers.
It can be difficult if you actually do need to file a claim on an extended warranty.
Many of the extended warranties or service contracts are actually overseen by third-parties, meaning you can’t call up the retailer or manufacturer if you have a claim. Occasionally those companies go out of business, meaning you have no one to call.
And because they’re not offered by the manufacturer, sometimes you’re paying for coverage you already have through the manufacturer's own warranty. There can also be lots of exclusions in the fine print.
For those reasons, the Ohio Attorney General’s office recommends anyone considering a service contract confirms it’s with a reputable firm and ensure you compare the two programs to ensure you’re not paying for duplication.
What about protection plans or service contracts for used cars?
Giorgianni gives the same advice: Steer clear.
“That’s one you have to be very careful about. Car service contracts can be hundreds or thousands of dollars,” he says.
The National Consumer Law Center recently released a major report on dealership add-ons including service contracts that found wide differences in costs and massive markups. The advocacy group even found evidence of racial discrepancies in some states.
That aside, they’re not usually good investments in the first place.
“Service contracts often pay out only a small portion of premiums in claims and much of the consumer’s payment goes to the auto dealer,” the report said.
Here’s what experts say you should do, whether you’re looking at a car or a vacuum cleaner.
- Read reviews from consumers and reputable publications.
- Take good care of your products and follow manufacturer's maintenance recommendations.
- Consider using credit cards to get extended coverage from the item’s manufacturer.
- Stash away the money you’d pay for an extended service plan as a sort of self insurance.
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