9 Reasons Extended Warranties Are a Total Waste of Money

We all know that sinking feeling of dread when you drop your phone in the toilet or your dishwasher starts leaking a week after you install it. 

While cursing your fate and trying to fix the problem, you wonder how much a replacement or a repair will cost you — and whether or not you can afford it.

Most people are reluctant to fork out extra cash to replace a costly item that died before its time, so many manufacturers and retailers have capitalized on this fear, offering extended warranties to protect consumers against expensive repairs or replacements. 

However, many financial advisors and consumer advocates argue that these extended warranties often waste more money than they save.

Here are nine reasons you should skip the extended warranty on your next major purchase.

Most extended warranties go unused.

Data from Consumer Affairs states that though 47% of vehicle owners hold an extended warranty, only 1 in 10 of them ever use it. The warranty claims for computers, which have some of the highest rates of warranty usage, only total 2.7% of the products’ sales.

If you purchase a warranty, chances are you won’t use it.

Most companies won’t insure your purchase forever, but things do wear out and break eventually, no matter how well they’re made.

Still, chances are pretty good your item will fail once it’s lived a long life and is old and worn out, not when it’s new and the manufacturer is willing to ensure its performance.

Manufacturer warranties and credit card protections often make extended warranties redundant. Many expensive items, like cell phones, exercise equipment, and electronics, already come with a manufacturer’s guarantee for a specific time period, often a year or more.

If you buy the item on a credit card, the card’s terms can extend coverage even after the manufacturer’s warranty has expired.

The coverage for extended warranties varies, but they can exclude essential protection elements. For instance, extended car warranties often include mechanical and electrical components, but they won’t help you with aspects like brake pads or rotors designed to wear out.

Some warranties do not cover if your item is lost or stolen, which limits its usefulness.

Many warranties have extensive exclusions, making it challenging to claim repairs or replacements. If the company makes a repair in their warehouse but won’t cover shipping charges, you may be out more money than you’d planned.

Another example is an extended car warranty that covers repairs but not the cost of towing or a rental car. Double-check the fine print to see what is and isn’t covered.

The cost alone should be enough to make you rethink the extended warranty. The warranty price often exceeds the cost of likely repairs or replacements.

For instance, a three-year warranty on a laptop may cost you about $230 — nearly half the value of your $500 computer. And you’ll pay that premium even if nothing ever goes wrong. Most of the time, it’s more economical to take your chances.

Warranties are a $40 billion business; salespeople often push these to boost their profit margins. The fact that retailers and manufacturers are making so much money on warranties tells you that customers are losing that much. 

This alone tells you all you need to know about whether a warranty is worth the money.

Even if your warranty is handy for a surprise repair, getting your money’s worth won’t be fun or easy. 

You may have to ship the product back, haul the item into the store, call (and wait on hold) a customer service line, have your original receipt, or jump through other hoops for the issuer to make good on the warranty.

Some extended warranties will transfer to a new owner if you sell your item, but others won’t. It depends on the terms of your contract. It’s imperative to read the fine print to understand what coverage your extended warranty offers you.

Every now and then, an item that you could get a warranty on will fail. But which one will it be and when? Since you’ll never know when these disasters will happen, putting what you would pay for warranties into an emergency savings account is prudent.

That way, you’ll be able to cover repairs when needed and keep more cash in your wallet rather than wasting money on warranty costs.

You might think you’re lowering your financial stress by opting for an extended warranty to save you the headache of unexpected repairs. However, you’re probably doing the opposite — dropping money on a service you don’t need and will never use.

If the thought of unanticipated repairs keeps you up at night, make a goal to beef up your emergency fund. That way, you’ll always have the cash to repair or replace an item, and you won’t be lining the pockets of the extended warranty companies.