Having to pay for pricey unexpected repairs can drain your savings, so many people opt to purchase extended warranties when buying high ticket items. Extended warranties are also referred to as service contracts or protection policies, and are commonly offered at the time of sale for everything from appliances and electronics, to computers and cars. Many items that you purchase have manufacturer warranties included in the purchase price, however, an extended warranty is an additional expense, so it’s helpful to know if you actually need it.
Factors to Consider Before Saying Yes to the Extended Warranty
Since extended warranties are offered primarily on higher priced items, it can be stressful to decide if you should pay more upfront just in case something were to go wrong. It’s important to know what the manufacturer’s warranty covers and what the extended warranty covers. Some extended warranty or service contracts simply duplicate the coverage that the manufacturer provides, cover only specific parts of the products, or make it difficult to get your product repaired. Here are a few simple questions to consider before saying yes to the extended warranty.
How long do you plan to keep the product?
If you plan on having the product for many years, an extended warranty might be a good idea, whereas if you regularly replace the item for the latest model, an extended warranty might be a waste of money. For example, if you need a car that will be driven well over the standard average miles per year, the manufacturer’s warranty might only last you two years rather than five. An extended warranty could protect you from possible expensive repairs while you are still making monthly payments for the car. However, an extended warranty would not make sense if you are purchasing a digital camera that includes a three year manufacturer’s warranty, but you buy a new camera with the latest technology every two years.
How likely is it that the product will need repairs?
Prior to buying any big ticket item, do your research. Compare products, read reviews, and see what the most common maintenance and repair issues are. Selecting a reliable product from a reputable company might mean that you are unlikely to run into any unexpected repairs. In this case, an extended warranty isn’t necessary. If you have to buy a product that is known for having issues or being expensive to repair, you might come out ahead in the long run by purchasing an extended warranty.
What does the extended warranty actually cover?
Before you say yes to the purchase of an extended warranty, find out what is included in the manufacturer’s coverage. Compare it with the extended warranty to see what additional benefits you would gain. This will help determine if spending the extra money is worth it. Be sure to look at the term length of each. Find out what parts and repairs are covered and which ones are specifically excluded.
How will claims be handled?
If you need a repair, what is the process you would need to go through? Do you have to pay a fee when you make a claim? Will you need to send the product off to be repaired, and if so, how long do repairs normally take? Are you limited to particular companies or individuals who can do the repairs? For example, if you buy a television with an extended warranty from a local electronics store, you may have to bring the television back to that particular store for repairs to be covered by the warranty, which could be problematic if you move to a different area. Or, if your refrigerator goes out on a Friday evening, will you have to wait until Monday morning to talk with the extended warranty company so they can schedule a technician to do the necessary repairs, or are you able to have the repair done immediately and simply be reimbursed?
Are they a reputable company?
Extended warranties are offered by many third-party companies. Do a quick online search to know if they will deliver on their promises. If an extended warranty company is known for not paying for repairs there will be reviews and complaints online.
What are your other options?
Would it be cheaper to pay out of pocket for repairs than an extended warranty? Can you purchase the item on a credit card that extends the manufacturer’s warranty on products you charge? Can you purchase the item at a membership club that provides additional coverage free of charge? Does the manufacturer have a goodwill program to offset some of the repair costs due to product flaws? Would you be able to repair it yourself if your product had a problem?
We all know that money doesn’t grow on trees, so it’s necessary to make smart decisions about what we purchase. The best way to ensure your more expensive purchases are smart ones is by doing your research. Know exactly what you are getting in return for your money. Extended warranties may give you peace of mind, but may be unnecessary for many of your purchases. Extended warranties are a bad choice if you plan on replacing the product before the manufacturer’s warranty is up. If you need to use the product for many years then an extended warranty is a good investment.
At Eastex CU, we are here to help our members and community members make smart financial decisions. If you need help planning or achieving greater financial success, stop by any Eastex Credit Union location and we’d be happy to help.