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Are Extended Warranties Worth It?

You’ve been eyeing that espresso machine for a while, picturing mornings sipping coffee from a tiny cup in your kitchen. You finally decide to go to the store and buy it. But before you can even swipe your debit card, the cashier asks, “Do you want to get the extended warranty?”

Extended warranty? You look at the espresso machine with concern. It would be a shame if something happened to it. So, you say yes and pay the extra cost—even though your new coffee maker already comes with a manufacturer’s warranty (something the cashier conveniently didn’t mention).

Hey, we get it. We all want peace of mind when it comes to things we pay big bucks for. But while extended warranties might sound like a great safety net if something breaks, are they actually worth it? Let’s dive in to what extended warranties are and if you really need one.

What Is an Extended Warranty?

Before we talk about extended warranties, we need to define what a warranty is. A warranty is a promise from a company that if the product you bought from them breaks, they’ll fix it or replace it for free. Nowadays, lots of things come with warranties—electronics, cars, washing machines, backpacks, you name it. Warranty contracts can last anywhere from 60 days to a lifetime guarantee, and the best part is that they’re automatically included when you buy certain items.

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An extended warranty, on the other hand, is even more insurance for an item beyond the original warranty. Unlike regular warranties, extended warranties are sold separately—which means you have to pay extra for them. There are even third-party companies whose only job is to sell extended warranties. You can buy an extended warranty on pretty much anything—toys, computers, headphones, even a pencil sharpener! But let’s take a look at some of the top things people buy extended warranties for.

What Can You Get an Extended Warranty On?

Electronics

Whether you’re standing in line at Best Buy or shopping online, you can’t buy a new laptop or TV without getting pushed to shell out even more cash on an extended warranty. That’s because retailers know you’re more likely to spend money to protect your big-ticket purchases. Cell phones especially are one of the most common items people buy extended warranties on without even thinking about it.

But many cell phone extended warranties only cover defective parts—and they’re no help if your phone is lost, stolen or damaged. There are also different versions of phone insurance out there like “device protection plans” or “service plans,” but those charge you an extra fee per month—and you usually have to cover a pricey deductible before your phone or tablet can be fixed or replaced. At that cost, you might as well save the money and buy a new device yourself.

Cars

For car dealers, it’s more important than ever that they get you to buy a car extended warranty. Why? Because that’s how dealers make a lot of their money. But most cars already come with a manufacturer’s warranty. So, if your vehicle has a faulty part, it’ll usually be replaced for free within a certain time frame or mileage. But car extended warranties cost thousands of dollars more—and you may never use it!

Plus, if you tack that cost on top of a car loan (which is another major rip-off), you’re just making an already expensive deal even more expensive, for no reason at all. At the end of the day, adding an extended warranty on your car (especially if you owe money on it) just isn’t worth it. And don’t forget that car warranties don’t cover everything car-related. You still need good car insurance to protect you while out on the road.  

Home

A home warranty covers repairs for things in your house like electrical systems, plumbing, major appliances and HVAC units. But a home warranty is not the same as having home insurance—which covers much bigger problems like fire, flood and theft. If you’re going to pay to protect your house, you might as well get better coverage by having home insurance instead.

Why Extended Warranties Are Not Worth It

Just because you can get an extended warranty on most things, it doesn’t mean you should. We’ve already told you about some of the problems with certain types of extended warranties, but here are some more reasons why they simply aren’t worth the price.

The odds of you using them are low.

Here’s the deal: Companies aren’t selling you extended warranties out of the goodness of their hearts to help protect your stuff. They’ve done the math. They have all the research about when their products usually start having problems. That means if a car dealer tries to get you to buy an extended warranty, they know exactly which parts on that model tend to break down and how fast. And they’ll purposely sell you an extended warranty that ends before that time—which means the odds of you actually getting to use your warranty are pretty low.

And if most customers actually had to use their extended warranty, companies would lose a ton of money. Trust us, the standard warranty that automatically comes with your new lawnmower will do just fine—plus, it’s no extra cost. And if the odds of your laptop or vehicle breaking down after the normal warranty is high, then you should probably shop around for a more reliable model first.

It doesn’t mean everything is covered.

Just because a company says you’re protected with an extended warranty, that doesn’t mean it covers every situation. For example, your TV might be covered if there’s a faulty wire or a pixel on the screen goes out. But your extended warranty may not cover your house getting struck by lightning and frying your TV, or you getting so angry at your favorite sports team losing that you throw your plate of hot wings at the screen.

Or let’s say you’re cleaning your house one day and your vacuum stops working. After calling customer service, you find out that you need to replace a part—only that specific part isn’t covered by your extended warranty. Well, isn’t that convenient? So, that extra $50 you paid up front wasn’t even worth it. You also don’t want to be out of luck if the service company goes bankrupt (which does happen). Again, companies have done their research, and they know exactly how to make sure they come out ahead when it comes to extended warranties.

They make you spend more.

You might think you’re saving money by buying an extended warranty. After all, they’ll fix or replace your treadmill for free, right? But it’s not really free if you paid extra for it. Extended warranties are overpriced, and they add up fast. Think about it: If you were to buy extended warranties for every device, appliance and machine in your home, that’s a lot of money you’re throwing away. But imagine if you saved that money instead? You could cover the cost of a new washer, and then some, if you really need to.

Plus, half the extended warranty usually goes straight to the salesperson’s commission, not back to you. Businesses get their salespeople to push extended warranties at checkout because it’s a huge moneymaker for them. Bottom line: An extended warranty is a total rip-off that only benefits the company that sold it to you.

Why an Emergency Fund Is Better Than an Extended Warranty

So, what should you do if your dryer stops drying or your drone loses a propeller? Well, even if the manufacturer’s warranty is expired, it’s always worth calling and seeing if they will still cover the repairs or replace the item. Some companies will go above and beyond to make their customers happy, and the worst that can happen is they say no.

Otherwise, that’s where an emergency fund comes in handy! Instead of buying a bunch of extended warranties that you’ll probably never use, you’re better off self-insuring by paying yourself the warranty payments. That way, if your TV does break after the normal warranty, you have the money saved to fix it. If not, it’s your money to keep. It’s a win-win!

Budget for Every Expense

If you want to be better with your money and build up that emergency fund, it all starts with a good budget. When you make a plan for the month, you’re less likely to waste your hard-earned money on things you don’t need (like extended warranties) and more likely to save up money for the things you do need (like repairs). But mostly, a budget gives you confidence and peace of mind because you know exactly where your money is going.

With EveryDollar, you can make a budget that works for you and keep track of all your expenses. It’s the best way to take control of your money and make progress toward the things that matter to you. And great news: You can start budgeting with EveryDollar right now for free!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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