If you’re thinking of making a big ticket purchase and you’re not sure if you need the extended warranty, let me put that quandry to rest forever.
The answer is no. You should always say no to the extended warranty. Why? Because stores use extended warranties to capitalize on your fear about making a big purchase. They know you are worried about spending so much money on something that could break. And they know that you can be easily convinced that an extended warranty will alleviate you of this worry. But in practice, all that an extended warranty does is require you to pay more for the same product.
If it makes you feel better, pay yourself that $50 (or whatever the cost) per month by putting it in an ING account. Then, if your TV breaks, you’ll have money to fix it. And if it doesn’t (which it won’t, in all likelihood), you’ll have an extra few hundies towards the next big ticket purchase.
The fact is that extended warranties are very profitable for retailers. They are used as a sneaky way to make you pay more for your big ticket items. As Consumer Reports‘ study on new car purchases shows, it is usually a bad deal for people to buy an extended warranty:
But extended warranties sell costly “peace of mind” for repair nightmares that probably won’t occur, according to a survey of more than 8,000 readers in December 2007 by the Consumer Reports National Research Center. We have long advised that extended warranties are a poor deal for almost every product. Now we have the first data showing that this advice applies to most new cars as well. (Consumer Reports, “Extended warranties: A high-priced gamble, April 2008)
So, while there might be isolated incidents in which having an extended warranty pays off, it is almost always a better financial deal to say “NO!” (firmly) when they ask you if you want fries an extended warranty with that.
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