Skip Those Extended Warranties!

It’s the shopping season now, and many of you are buying items like electronics, things with lots of parts, and maybe even a car. And, quite possibly, you will be offered an extended warranty. Usually, this comes at extra cost, sometimes prohibitive extra cost. Should you go for it?

The only time you should automatically go for an extended warranty is if it is being offered for free! Otherwise, it depends on the price, and other factors.

If the item is really cheap and the warranty offered is more than 5% of the original price, skip the warranty. Period.

Items with lots of parts, or electronics? In my opinion, it depends on the price of the extended warranty, the store where you are buying the item, and whether or not there is a free basic warranty. Especially if the store is noted for not really backing the customer when a dispute arises. You could be throwing money away in such a case.

Where cars are concerned, absolutely skip any extended warranty offers! Many insiders in the industry who’ve turned consumer advocate say not to get one and that they are not worth the paper they’re written on!

And I concur. I purchased a used car some years back, and it has served me well. I’ve had new cars, too, and knew not to get any extended warranties, but, since this was a used car with no basic warranty, I decided to purchase an extended warranty, believing that it would act the same as a basic warranty from a dealer, at least to some extent after I paid a $100 deductible.

Well, lo and behold, I had a part that needed repair and the warranty people said it did qualify as warranty work. But, they said that the job should only take 2 hours while my mechanic, who I know is honest, said it was an 8 hour job, which it was.

So the warranty helped very little, and I would have to have a real “lemon” of a car, with everything that went wrong qualifying as warranty work, to have even the slightest chance of getting back the money, through savings, that I paid for the warranty! Luckily, I was not too far into my warranty period and managed to cancel the rest of the warranty and get my money back!

You see, extended warranties for cars are more like insurance. When you get a new car, as I did in the past, the car comes with a standard basic warranty. (Usually 3 years or 36,000 miles, though some are for longer periods and greater mileage.) With this basic warranty, anything that goes wrong that is covered by this warranty gets repaired, usually at no charge with no deductible. 

With an extended warranty, it’s like health insurance. They can deny that the work is covered by the warranty, or, if they approve, they’ll claim that the job can be completed in far less time than it actually can. And you have to pay a deductible, too!

Let’s say you bought an extended warranty for your car for $2,000. (Usually this is a low price. Some can run as much as $5,000!)

This means that for a job that costs $1,000, you first would have to pay, say, a $100 deductible. Then, your mechanic says the job will take about 8 hours to do, and the warranty people say it only takes two hours, and so should only cost about $250, based on the hourly rate. Subtract your $100 deductible, and the warranty ends up only paying $150! You still pay $850 out of your own pocket! And since you only got $150 back from the $2,000 you paid for the warranty, you’re still out $1,850 for the warranty as well!

You would have to have 14 $1,000 repair jobs to get back the money you paid for that extended warranty! And if your car needs that many $1,000 repair jobs, you’ve got a real lemon!

It’s far better to keep that $2,000 that you would have paid for that extended warranty, and use it to pay repair bills yourself instead.

Without that extended warranty, you would pay the full $1,000 for that repair, but you would still have $1,000 left over from that $2,000 that you didn’t use to buy that extended warranty!

So, even if you get a used car, skip the extended warranty! (Unless it’s free or less than 1% of the original price of the car!)

If a car sales rep pushes an extended warranty, ask him or her if they are trying to sell you an unreliable car, and see their reaction!

So watch out for those warranty offers!

If you like what you’ve read here, please let others know of this post, blog, and site!

And thanks for reading!  🙂

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