Better safe than sorry?

PERSONAL FINANCE

There's no assurance extended warranties are worth the price

Buying A Warranty

Your Money

October 24, 2004|By EILEEN AMBROSE

THE question comes up whether you are buying a sofa, computer or car.

After convincing you that you're purchasing the best product on the planet, the sales person then incongruously asks if you want to buy an extended warranty in case something goes wrong. Visions of damages and repair bills race through your mind.

Before you know it, you can end up plunking down more dollars for peace of mind.

But are extended warranties warranted?

An extended warranty covers repair or replacement of the item after the manufacturer's basic warranty expires, usually after a few months of purchase or a few years, depending on the product.

For many products, consumer advocates generally say don't waste your money. Extended warranties are big profit makers for those hawking them. Products today are better made and less likely to break down and require consumers to make a claim. When they do, the repairs may be less expensive than the extended warranty - especially if financed over several years.

"Sales people are taught and pushed to sell these things. There is a big profit margin on them," Robert Krughoff, president of Consumers' Checkbook, a consumer group in Washington. "They are a form of insurance and it only makes sense to buy insurance against catastrophes."

With technology products, often by the time they give out consumers are ready for a new model anyway. For emerging, high-priced tech products, however, such as plasma TVs, an extended warranty could prove useful, said Amanda Walker, an associate editor with Consumer Reports.

"We find that the service contract or extended warranty might give people peace of mind. The products are so new, we don't have any reliability data on them yet and they are very expensive, and, of course, their repair can also be very expensive," Walker said.

The consumer magazine also found extended warranties could be worthwhile for laptop monitors and treadmills that tend to have problems and can be costly to repair, Walker said. Marc Seidler, owner of the Computer Doctors, a computer repair business in Westminster, Md., said he doesn't recommend extended warranties for personal computers. Extended warranties typically cover hardware, which is very reliable these days, Seidler said. The average cost of a computer is $600, and an extended warranty can cost as much as $300. After three to five years, the typical computer is outdated and impractical to fix, Seidler said.

If you're still inclined to buy an extended warranty, check if your credit card offers extra protection on products purchased with the card. Some gold and platinum cards will extend the manufacturer's warranty on purchases for a year or more.

For cars, the standard warranty is usually three years or 36,000 miles. Some manufacturers are increasing their basic warranty to four years or 50,000 miles or even as much as six years and 100,000 miles.

"Cars are becoming more reliable over the years," and consumers are making fewer claims, said Rob Gentile, associate director of auto price services with Consumer Reports.

Extended warranties for autos aren't cheap, ranging from $500 to $2,500. Check first to see what the basic manufacturer's warranty covers and for how long.

Typically, the basic warranty offers bumper-to-bumper coverage, excluding items that are damaged through normal wear and tear, such as brake pads or tires.

If you're planning on keeping the car for a long time, an extended warranty might make more sense, said Philip Reed, senior consumer advice editor with Edmunds.com and author of Strategies for Smart Car Buyers. But even then, there's no rush. You can wait and buy the warranty later when your basic warranty nears expiration, he said.

Also, you can buy an extended warranty from the manufacturer or outside company, although consumer advocates suggest sticking with the manufacturer.

A warranty from an outside company may be cheaper, but repairs may be made with after-market parts, claims may be more difficult to make and consumers might have to shell out for the cost of repairs upfront and wait to get reimbursed, experts said. And negotiate the price of an extended warranty, they add.

Extended warranties have a high mark-up, but just like with a car, their price can be haggled downward, Gentile said.

Be aware that even if you don't buy an extended warranty, the cost of repairing a defect still might be covered by the manufacturer even after the basic warranty expires.

Edmunds.com, an online automotive resource, posts technical service bulletins on recurring car problems that might be covered after a warranty expires.

Owner manuals for General Motors vehicles state that the manufacturer or dealer may provide assistance after the warranty expired if a defect in the material or workmanship was the root of the problem, GM spokesman Tom Henderson said.

The decision to give assistance is made on a case-by-case basis, but the first step is for consumers to contact the dealer, he said.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

Be informed

Questions to ask before you sign on the dotted line:

Does the extended warranty cover the time after the manufacturer's warranty that comes with the product?

Will someone come to your home to fix the item, or will you have to cart it off to a specific store, factory or dealer?

Who will honor the extended warranty if something goes wrong? Many stores sell extended warranties but send you to another store or the manufacturer if you make a claim.

Does the warranty cover both parts and labor?

Can you buy an extended warranty directly from the manufacturer rather than in the store?

What happens to your coverage if the store or the manufacturer goes out of business?

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