Wednesday, September 30, 2009

Don't Buy An Extended Warranty

When shopping for electronics and big ticket items, make sure you don't get caught with your wallet open longer than it needs to be.  These days, with retailers struggling, there is an even more intensive effort to ensure their bottom line stays in the black.  With so many avenues for shopping available, the consumer has their pick of the litter on finding the best price.  However, what you might fall victim to is an attempt at widening a store's profit margin at your expense. 

The last time you bought an electronics item, such as a stereo, were you offered an extended warranty?  Chance are you were.  The pitch goes something like "With this warranty, you won't have to worry about replacement costs should it break in X amount of time." Yadda, yadda.  Well, who wants to be holding the bag when it does fall out of warranty and suddenly your stereo is a better box to stand on than listen to? So you might be tempted. My advice, don't fall for the warranty pitch.

Here's why:

Reason 1) assuming that most products are well-manufactured, you will most likely have your item for several years before anything happens to it.  Unless it's a lifetime warranty, the statute of limitations will likely have passed on the extended warranty.  Case in point, although I donated it a few months ago, my Sony CD player from high school worked like a champ throughout my years of owning it.  Let's just say I left high school more than a few years ago.  But, when I bought it at a big in-store retailer (that is now out of business), they tried to sell me the warranty.  I declined. 

Reason 2) It's pure profit.  Retailers perform a complex equation to determine the amount of people who will actually return to the store to claim their extended warranty.  That complex math is called statistics.  Statistically, the risk is less for them that you will actually cash in your warranty, netting them fat profits.  Remember, it's a business, they are not charity.  If the probability were such that people would be more prone to claim their warranty than not, it would hurt profits. 

Reason 3) You may already have a warranty.  As long as your credit is good and you are responsible with it, I recommend that you use your credit card as much as possible when you shop (for anything).  This is because the consumer protections are superior to a debit card's (typically), you earn cash back/points, and you probably already have an extended warranty automatically built in with your purchases made with the card (it may be an extra year only, so check).

The point is, don't fall for this tactic.  You are better off saving your money for the inevitable replacement.  As a bonus tip, you can buy quality refurbished name-brand products, like printers, at bargain prices.  If you need to replace a broken item, you might just decide that it makes more sense to replace it this way.