Hi everyone, I’ve been plagued with bad luck lately. In the past 6 months, our dishwasher has broken three times (bought last June), our air compressor has broken once (bought last summer), and just this past weekend, our computer lost its hard drive (bought in November). There is one upside to this story: everything was under warranty and fixed for free. The dishwasher required a repairman to come out 3 times (would have cost about $1000 without the warranty), we took the air compressor back for repair (would have cost $70), and the computer repairman replaced the hard drive yesterday (repair cost about $200). That’s a grand total of $1270 that we would have had to pay if our devices weren’t under manufacturer’s warranty.
Wow, this sounds like a case for buying the extended warranty. Well, time to look at the other side of the coin.
Rule #1: The extended warranty isn’t the salesperson looking out for your best interest. This is math. Some people that work for large retailers or manufacturers get paid a lot of money to make sure that this is a profitable business. I love Investopedia. Here’s what they have to say:
“What most consumers fail to realize is that although the price of an extended warranty often seems like a bargain to a consumer who is aware of the steep price of repairs, it has actually been carefully considered through actuarial analysis by the company that offers it. In other words, the company uses probability and statistical methods to calculate the likelihood that your new refrigerator or big-screen television, for example, will require repairs. This figure is weighed against how much those repairs would cost to arrive at the price that a company will charge consumers for a warranty on a particular item. This formula is not designed to work in your favor.”
Rule #2: Check the manufacturer’s warranty. Most products come with a 12 month warranty. If most products are going to break, they do it in the first couple months of use (i.e. all of the cases we’ve experienced in the introduction).
Rule #3: Check your credit card. My American Express and Jess’ Discover card both extend the manufacturer’s warranty for an additional 12 months for free. That means I already have a 24 month warranty. I found an article on this exact topic (By the way, AMEX, Visa, and Mastercard don’t cover repairs to your pet…Apparently Discover does).
Rule #4: Electronics depreciate with time. This means that yes, Best Buy will replace your computer in 3 years if it breaks, but the computer you buy today will be way cheaper in 3 years, so they won’t have to spend very much to replace your computer with the same specs. Furthermore, if you do need a repair, it may cost less than the warranty cost in the first place…and you could have been making interest on that money (or got the benefit of buying new shoes/tools/plants).
Rule #5: I found this AWESOME table on Investopedia. This shows how often common products need to be repaired within the first 3 years.
Rule #6: There are still good extended warranties you should buy. Namely, Apple’s mobile products. For some reason, Apple products don’t get much cheaper with time and you can get an extended warranty for pretty cheap. I recommend SquareTrade, but wait until they have a sale. I’ve been able to get a 3-year iPhone warranty with drops and spills for $54. Chances are, I’m going to drop or spill on my iPhone during that time, and replacing an iPhone 5 will cost at least $300-$400 for the next couple years. Replacing a broken screen is at least $100, so I found this to be a decent buy.
Let me know if you have an opinion on this topic. I take the stance: the math doesn’t permit me to buy an extended warranty. However, I’ll gladly take the free one my credit card offers.
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