Archive for July 2011

Is it worth it to buy an extended warranty?

Whether it’s a car or computer, each time we make a purchase, there is a risk of product failure. To be a smart consumer, we have to weigh the costs and the benefits of a warranty. We must ask ourselves, what is the worst that can happen? And then contemplate how much loss we are willing to accept. For me, a warranty almost always makes financial sense. I tend to have bad luck with my products – they are simply not built to last.

I have an extended warranty on my PS3, it cost me $80 and nothing has gone wrong. But the two year coverage ends this Monday, so now I can only hope nothing goes wrong. I have a three year warranty on my television (only one year left!), and a five year extended warranty on my car (only two and half left!). My car warranty cost me $2,500 in 2009 but since then, I have saved over $8,000 because of it. My car has been extremely problematic.

Most products come with a limited manufactures warranty, like my cell phone. I had it for five months when it started acting funky, so I took it to the Sprint store and they gave me a new one for free. Credit card companies also offer free warranty extensions on products purchased with the card. Check your card member agreement terms to see if this is available to you.

I read an interesting argument against purchasing extended warranties. The idea is, instead of purchasing the warranty, you take the money you would have spent on the warranty and put it aside in a separate saving’s account. Do this for every product for which you could have bought extended warranty. You have now created a funding source for repairs. Since it is unlikely that all your products will break at the same time, you can withdraw funds as items fail.

This strategy would not have benefited me due to the ridiculous problems my car has had, but for some people, this strategy would work. Everyone has a warranty story, some good, and many bad. What’s your story?