Extended Warranties: Some Are Worth It, Most Are Worthless
Filed under: Consumer Ally, Shopping, Consumer Issues, Consumer Protection, Ripoffs & Scams
At a casino, the odds are always with the house. When it comes to extended service contracts and extended warranties, the same rule applies, but the sellers win with different bets — that you’ll never use them, overpay for them, or fail to understand what’s covered.
Warranties can cost you plenty, and extended warranties have plenty of fine print. You need to read them before you sign, and do the math to determine what the chances are that one will pay off for you. The odds are already stacked further against you if you don’t.
And you may have more rights than you realize to make a manufacturer or retailer address an issue. The Federal Trade Commission offers guidelines on extended service contracts.
Auto Extended Warranties
Consumer Reports characterizes extended auto service warranties mostly as dealers’ last-ditch effort to get more of your money. They’re an expensive gamble for you, and sheer profit for them. Even if you do have to get a repair, that contract enures you’ll come back to the dealership.
A 2013 survey of 12,000 Consumer Reports subscribers found of those who purchased extended auto warranties, a staggering 55 percent never used them. Those who did spent a median of $375 more overall compared to those who paid out of pocket for repairs.
Popular Mechanics, on the other hand, sees some value in extended warranties — with notable caveats. In an article forthrightly headlined How to Get a Used-Car Warranty and Not Get Screwed, it cautions that a warranty on a certified pre-owned car is likely to be useless, since the car has been vetted and found to be in good shape. But for luxury cars and hybrids that can be expensive to repair, Popular Mechanics in most cases advises getting a warranty — even for cars that are certified pre-owned.
Both publications point out that buying a reliable model is the best insurance against costly repairs down the road. Both also caution against buying an extended warranty from a phone or mail solicitation as these are frequently scams.
Home Warranties
With the joys of homeownership invariably come problems — especially with houses that are, as some say, of a certain age.
The home warranty I had with my last house pretty much paid for itself. A friend had even better results with her warranty. Her dryer went bust, and she made money on the replacement with a manufacturer’s rebate.
But there are many reasons against them. With a newer home, a builder’s warranty should cover many repair issues, just as a manufacturer’s warranty does for appliances or cars. In many instances, homeowners insurance will cover damage from accidents. Home warranty companies top the most-complained-about list on Angie’s List (ANGI) year after year, but the site attributes this to consumers assuming something is covered that isn’t, and then being surprised by the service charges that are standard to most home warranties.
That said, if your house is under 10 years old, both Consumer Reports and Consumers Checkbook instead recommend setting aside a household repair fund in an interest-bearing account.
Tech and Appliances
If you’re buying tech gadgets or appliances, you will be invariably be pressured to buy the extended warranty. Don’t, Consumer Reports counsels. Electronics rarely need repair during the extended warranty period.
Purchases made with with certain credit cards get extended coverage. American Express (AXP) is cited by The New York Times (NYT) as the best card for extended warranty protection. USA Today recommends third-party electronics warranty companies like Square Trade as an alternative to in-store warranties.
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