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Are extended warranties worth it on major purchases?

November 23, 2012 12:00:00 AM PST
If you've begun your holiday shopping, you already know: salespeople are pushing those warranties and service plans. There's a real dollars-and-cents reason for this. Stores make a lot more profit on these than on the actual product you're buying. Does an extended warranty make sense?

Whether you are buying a holiday gift or you need a new appliance, you're often urged to buy a service plan. Even online, many sites offer an "extended protection plan" before you check out. But Consumer Reports Associate Finance Editor Tony Giorgianni says service plans are almost never worth it.

"Our reader surveys show that products don't break down that much during the service contract period. And even if they do, it doesn't cost that much more to repair them than it does for the contract itself," said Giorgianni.

Extended service plans are expensive. They can boost your costs by 30 percent or more and run into hundreds of dollars.

"If you pay for a repair yourself, there's a better chance that it's going to be done correctly and quicker than if you had it repaired under a contract," said Giorgianni.

That's what Allen Peacock found when his dryer broke. He was told he'd have to wait three weeks to have it repaired under the service contract.

"I expected prompt service. And instead was told kinda 'You're out of luck, fella,'" said Peacock

Consumer Reports says better than buying a service plan is paying with a credit card. Many cards automatically extend the manufacturer's warranty up to a year, so check your terms. Calling the manufacturer can pay off too.

"Just because the manufacturer's warranty has expired doesn't necessarily mean you're out of luck. If you contact the manufacturer and make a good argument, there's a good chance the company will pay for part or even all of the repair," said Giorgianni.

The one possible exception to the "no extended warranty rule" is when buying a laptop computer. If you're going to travel with it a lot, Consumer Reports says you may want to consider an extended warranty that covers accidental damage.


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