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Written by admin on December 26th, 2009

To Spend or Not to Spend on Extended Warranties

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There are lots of ways to overspend or go into debt, and one of those ways is purchasing extended warranties on products. The extended warranty is exactly what it sounds like – a warranty that extends beyond the standard warranty period.

Consumers have been purchasing extended warranties in greater amounts this year. The Service Contract Industry Council reports a 10 percent increase in extended warranty purchases in 2009. So why are consumers spending money on warranty contracts when money is so tight?

One of the reasons is that more electronic products are being purchased and people don’t want to take the risk of incurring expensive repairs. Once you get an electronic or computer item set up, the repair may provide more value than just fixing a broken component. The repair might save data for example.

In other words, the complexity of technology has made extended warranties more appealing to consumers. Retailers are offering extended warranties on even inexpensive items such as cheap headphones. The question becomes one of how to decode when buying the extended warranty makes sense.

One of the guidelines is comparing the cost of the item to the cost of the warranty. If the extended warranty costs more than replacing the original item then obviously you would not want to buy the warranty. In cases where the product costs a lot more, it’s not as easy to decide. But the good news is that you usually have up to 30 days to decide if you want to purchase the extended warranty.

Before committing to the warranty, you should read the contract terms closely. Warranties are written with loose and restrictive clauses. If you discover that the contract only covers unlikely repairs or is so limited that it doesn’t really cover much then it’s not worth the money. The popular product testing and rating company, Consumer Reports, does not believe extended warranties are worth the money. According to the company, most products will not break within the extended warranty period meaning the money has been wasted.

Another consideration when buying a warranty is that many electronic and computer products are not intended to last for five years. For example, at one time a computer printer was expected to last for years and was repairable when it broke. Now the cost of printers has dropped so low that it is more cost effective to throw it into the trash rather than try to get it repaired or to buy an extended warranty contract.

In addition, technology changes so quickly today that most people want to buy the newest upgraded product models when the old product breaks down. But if the warranty comes with tech support it might make sense for some products such as computers.

The sale of extended warranties is big business. During the current holiday season consumers will spend up to $1.3 billion on extended service contracts. That’s hard to believe in a tight economy, but many consumers are looking for the assurance they can get their products repaired when needed.

The message to consumers is that extended warranties today make sense under limited circumstances. There should be some extra benefits obtained that would not be possible otherwise such as product support or in-home repairs. When trying to manage money though, it often makes the most sense to just put the equivalent of the cost of the extended warranty into a savings account.