Extended Warranties a Waste of Money

Magazine Advises Readers to Save Their Money

November 15, 2006

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This holiday season, consumers are expected to spend a whopping $1.6 billion on extended warranties for laptops, flat-screen TVs, and other electronics, and appliances. And Consumer Reports says that almost all of it will be money down the drain.

The magazine has launched a public education campaign advising consumers that extended warranties have become big business for retailers -- and a waste of money for consumers.

Consumer Reports' arguments basically echo ConsumerAffairs.com's special report, Five Reasons Not to Buy an Extended Warranty, published more than a year ago.

In a time of razor-thin margins, extended warranties have been a boon for retailers. Extended warranties can reap a 50% margin or higher, which is often well more than the profit on the product being sold.

Years of survey data from CR data show that extended warranties are a notoriously bad deal for consumers. The Consumer Reports National Research Center tracks the ownership experiences of millions of consumers and thousands of products.

Annual surveys ask the magazine's subscribers if they own certain products and whether they've needed major repairs. By analyzing those data Consumer Reports has learned which brands have been more repair-prone than others.

The survey findings show that products seldom break within the Extended Warranty window -- typically three years -- and that when electronics and appliances do break, the repair often costs about the same as the cost of the warranty.

"Based on our extensive testing and research, Consumer Reports has long advised against extended warranties," said Kim Kleman, the magazine's deputy editorial director. "A better idea is to buy a reliable brand."

Two Possible Exceptions

Consumer Reports notes that there are two possible exceptions when it comes to extended warranties: rear-projection microdisplay TVs, which are expensive to repair and are three times more likely to need repairs that other types of TVs; and Apple computers, because they come with only 90 days of tech support and the additional warranty extends that.

For consumers who want absolute peace of mind and don't mind paying for an extended warranty that they'll probably never need, Consumer Reports offers the following advice:

• Check your credit card -- Plans, often found on gold and platinum cards, typically lengthen the original manufacturer's warranty by as much as one year.

• Shop around -- Extended warranties vary in length and term. CR advises shoppers not to pay more than 20 percent of the purchase price for the extended warranty and to negotiate the price and terms.

• Beware of hidden "gotchas" -- For heavy items such as large TVs or major appliances consumers should ask if in-home repair or pickup is included. For TVs, who reinstalls it? And if the product will be repaired, is there a lemon clause such that after a few repairs the product is replaced?

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