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When you buy computers, electronics or appliances, you will likely be asked if you’d like to get an extended warranty for it. This is common practice upon check out at many stores. It seems like it might be a good idea because you worry about what happens if it breaks. Will you have to buy a new one? And how expensive will that be?

However, the reality is that extended warranties are rarely worth the money. So, don't give in to the fear that comes with the sales pitch, and just say no.

Why Extended Warranties are a Bad Idea

There are a few reasons why I don’t believe that extended warranties are worth the extra expense:

  • Most products are unlikely to need repair during the extended warranty period. They will either have a manufacturing defect that can be replaced during the manufacturer warranty or may need repair due to age or wear and tear well after what the extended warranty will have covered.
  • The cost of repairing the item may be similar, or even less, than the warranty itself.
  • With advancements in technologies and constantly dropping prices in computers and electronics, it may be worth replacing the item if it’s been 2 or 3 years since you’ve purchased it. For example, 2 years ago someone could buy a DVD player for $200 and an extended warranty for $50 extra. But if they skipped the warranty and now the DVD player isn’t working, they could simply buy a new Blu-ray player for that same $50… and now the new Blu-ray player includes new features like DVD up conversion and a USB port.
  • Everything may not be covered under the extended warranty. Certain parts might be excluded or labour and shipping may have to be paid by you.
  • Many gold and platinum credit cards will double the manufacturer’s warranty, up to a year, if you purchase the product with that card. No need to get an extended warranty at all when you have the right credit card.

In many cases, extended warranties are a waste of your money. If you are really concerned about it, consider setting up a small emergency fund to help you pay for repairs or replacements down the road. This can be more effective overall, and at least you can earn interest.

If You Decide to Purchase an Extended Warranty

If you do decide to get an extended warranty, negotiate the price or try to get something included with your purchase. Don't just pay the warranty price and move on. For example, when buying a TV with an extended warranty, you may be able to get your HDMI cables or a DVD player thrown in. Most companies have quite a bit of room to deal since they keep at least 50% of the price of the warranty.

The point of an extended warranty is to give you the illusion that you are getting added value. However, unless you can negotiate a lower price, or some extra freebies, you aren't seeing added value at all.

Re-think the need for extended warranties, and consider how you can put that money to better use in other ways.

Extended warranties are rarely worth the money. So, don't give in to the fear that comes with the extended warranty sales pitch, and just say no.

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