5 Things to Know Before You Buy an Extended Warranty

It is getting harder and harder to find a product that does not offer an extended warranty these days. It seems like every store now offers some sort warranty on some of their merchandises. For $3, $8, or $40, you can get an extra one, two, or more years warranty. And the pitch usually goes like this: “things usually break after the factory warranty runs out, with the extended warranty, you can bring it back and we’ll take care of you.” But, is it a good idea to spend extra money for the extended warranty?

What You Should Know Before Purchasing An Extended Warranty

Photo by S_Baker via Flickr.

Extended Warranties are Generating Huge Incomes for Stores

Extended warranties are very lucrative for the stores that offer them.  For the store to make a profit, people must not make claims frequently.  This means statistically you are not likely going to need the warranty.

Why do you think everyone now offers an extended warranty for everything but your toothbrush?  Why do you think that many stores are requiring clerks to ask you about an extended warranty?  Some car sales locations have been known to put a lot of extended warranty pressure on people.

Why? Because they are a significant source of highly profitable income.

Extended Warranties Require a Good Memory and Organization

I’ve purchased a lot of products that offer credit card purchase protection, but I don’t think I’ve ever made a claim.  Want to know why?  When something breaks, it is hard for me to think to check on my coverage.  In addition, I often can’t find the necessary paper work.  In the end, I just conclude that it is easier to go and buy a new item.

Here’s a good list on what paperwork to keep and what to get rid of.

To capitalize on an extended warranty, you need to be organized and keep all your records accessible.  Most people are not that financially organized.

Most Products Already Have a Warranty

Many products come with a manufacturer’s warranty.  Some already with a lifetime warranty.  I’ve found that if you contact a company about a product even after the warranty is expired, they will often help repair or replace the product at a discount.

Even if a product does not have a warranty it is possible you can get a warranty with your credit card.

If you are a person who usually buys extended warranties, then when you shop you should look for items that already have a very good warranty policy.

Fast Changing Technology Means You Might Not Want The Same Item Anyways

Most items with extended warranties are electronic.

The thing about electronics is they change at an unbelievable speed.

I buy a new laptop about every two years.  What was top of the line two years ago is now the bottom of the line.  However, if I had purchased an extended warranty they would only offer me something comparable to what I currently own.  At that point, there is a good chance you would want the newest product anyways.

Calculate The Value of Extended Warranties

Before you make your next purchase for which you might get an extended warranty, you should find out the cost of the warranty.  Then look back over your own experiences with the said product.  How many problems (outside of the regular warranty) have you had with this product?  When it finally did break, would you rather have the same thing back or a newer model?

Create Your Own Extended Warranty Fund

I first came across the idea of an extended warranty fund from Five Cent Nickel.  Basically, when someone offers you an extended warranty, you say “no”, but you find out how much it would have cost.  Then, you go home and transfer that amount of money (price of the warranty you just declined) into a separate bank account.  When something breaks, use that money to repair or replace the item.

Try it for two years, and then based on your account balance, you will know if extended warranties are good or bad.

Do you purchase extended warranties?  Do you think extended warranties are worth the price?

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About the Author

By , on Apr 26, 2010
Craig Ford
Craig Ford is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

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Leave Your Comment (2 Comments)

  1. James says:

    i have heard stores like Best Buy make the majority of their revenue from extended warranties. next time you are in there you will almost 100% have your sales associates ask you if you would like an extended warranty with your purchase.

  2. kt says:

    I have never needed the extended warranty on any of my electricals. I think it boils down to the quality of the products and how much care you take when using and storing your gizmos. Some people have more need of extended warranties that others but all in all it is a clever way for the manufacturers to get a little more money from their consumers.

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