A car that needed an extended warranty.

Extended Warranties

Extended warranties are offered on just about everything these days. You can get one on anything from a toaster to a Toyota. It sounds reassuring having your products backed by a warranty but is it really worth it? Let’s take a look at some common examples of warranties that you might be offered.

Automotive Extended Warranties

Besides your home, your vehicle will probably be the costliest thing that you buy. An extended warranty might then seem like a no brainer right, well maybe not.

Just like everything else sold by the dealer, a warranty is sold as a profit item. It might be a good idea to purchase one but you need to ask yourself a few questions first. So, before you drop as much as 2500 dollars on an expensive car warranty, let’s look at some things.

1. How Long Will You Own Your Vehicle?

Are you the kind of person who keeps their vehicle forever or do you really like that new car smell? The average length of ownership for a new vehicle is just under six years so determine which side of that line you fall on first.

2. How Long Is The Factory Coverage?

Every car out there comes with at least 3 years and 36,000 miles of factory protection. Some will even come with 5 years and 60,000 miler or even 10 years and 100,000 miles of protection.

3. Are Expensive Repairs Likely?

Some cars or trucks are just more reliable than others. Honda and Toyota vehicles, for example, have a reputation of providing years of trouble free service. In addition, some vehicles are more expensive to repair than others. Replacing an alternator on a BMW will be more expensive than on a Ford. Likewise, diesel engine repairs will cost twice as much as gasoline repairs.

4. Can You Afford To Make Repairs?

If the worse were to happen and a major repair was needed, could you afford it. Major repairs can easily cost 3 to 4 thousand dollars. This is for repairs like rebuilding an engine or replacing a transmission. Are these common on well maintained modern vehicles, no, but that does not mean that it will not happen to you.

Once you weigh in on all of the factors above, you can decide whether or not to purchase that extended vehicle warranty. In the end, it all comes up to risk analysis. How much risk are you willing to take on. Most likely, you will never need that extended warranty and it will be a total waste of money. It might, however, save you from thousands of dollars in vehicle expenses that you might not have otherwise been able to afford.

If you have the money to pay for possible repairs, it would probably be best to skip on the extended warranty. Take the money you would have spent on it and throw it into savings or an investment fund. The odds say that this will allow you to come out ahead.

It, on the other hand, you plan on keeping the vehicle for some time and could never afford to make major repairs, a vehicle warranty might be a smart idea. It could spare you from total disaster or from having to take an expensive vehicle repair loan in the future.

Electronics Extended Warranties

This includes things like televisions, blu-ray players, smart devices, etc. You are probably familiar with being asked whether you would like the extended warranty at checkout. You might even have to sign off on the fact that you do not want the warranty, that’s a sales gimmick.

Warranties on electronics are easy to decide on. They are almost always not worth purchasing. We can ask ourselves a couple of the same questions as above and see why rather quickly.

1. How Long Will You Keep Your Electronic Device?

Some things, we just do not keep very long. With electronics there is such a short lifespan that products become obsolete in a matter of years. If not completely obsolete, they lose almost all of their value.

2. How Long Is The Factory Coverage?

Most products have a one years manufacturer warranty that will cover them for any defect. After that time, you would be on your own but the item would probably not be worth repairing because of the diminished value.

3. Are Expensive Repairs Likely?

How likely is it that that television stops working or that your vacuum cleaner turns out to be a dud. After the first year, it is fairly unlikely and you are factory covered for that first year.

4. Can You Afford To Make Repairs?

If your tablet or your apple watch dies on you, chances are good that you can afford to make repairs but you would probably not want to. Repair costs would typically exceed the cost of the device and replacement would be a better option.

Weighing in all these factors, it is fairly evident that expended warranties on electronics are not worth the money. The one year warranty more than covers the device during the most valuable time in it’s life. After that time, the value typically drops so low that it is not worth insuring. Why pay 100 dollars to warranty a TV for another year when it only has a 200 dollar value that second year.

The only one that typically makes money on extended warranties for electronics is the store that is selling them. Pass on the warranty plans and you will come out ahead in the end. There may be a time in your life when a particular device could have benefited from one but over all, it is in your best interest to play the averages and pass on electronic device warranties.

Appliance Extended Warranties

Appliances could be grouped in with electronics but they are very different, mainly because of their high level of use and long life.

You will surely be offered an extended warranty on your appliances and they are very tempting. Should you pull the trigger on one. Let’s take a look qt the same old questions.

1. How Long Will You Keep Your Appliance?

We tend to hang on to our appliances for a long time. A refrigerator can easily go ten to fifteen years, as can a washing machine, oven or built in dishwasher.

2. How Long Is Factory Coverage?

In most cases, the factory warranty is a simple one year warranty. Given the long life of an appliance, it is fairly short.

3. Are Expensive Repairs Likely?

This depends on the appliance. The more complex it is, the more likely a repair will be needed and the more expensive it will be. Washing machines and dryers are fairly problematic, quickly followed by refrigerators and dishwashers.

4. Can You Afford To Make Repairs?

Unless you can do the work yourself, you can count on pretty much any repair costing at least 100 dollars just to account for the trip charges. Large repairs can easily go 300 to 400 dollars, sometimes more.

Once again, take everything into consideration when making a decision on a warranty for an appliance. Unlike an electronics warranty, they do have some value due to the long life of appliances and the relatively high value that they tend to hold.

Having said that, they would not sell a warranty if they could not make money on it. It all, once again, comes down to how much risk you are willing to take on in order to save money.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.