Why extended warranties can be an expensive mistake

Updated on 07 December 2012

Extended warranties are a profitable sideline for many retailers, but a bad idea for most shoppers.

Manufacturers' warranties and guarantees

Many products come with a free guarantee or warranty from the manufacturer, and these generally promise to give a free repair or replacement if the product goes wrong within a specified time, usually one year.

However, if you buy something that is faulty you have statutory rights against the retailer under the Sale of Goods Act 1979. These state that if something goes wrong with the goods, within a reasonable time frame, then you are entitled to request a repair, replacement or refund.

When the warranty or guarantee has run out, you will still be able to rely on your Sale of Goods Act rights if the product develops a fault within a reasonable timeframe.

But it’s difficult to define ‘reasonable’. If something you buy breaks down within a week, it is ‘reasonable’ to presume that the product should have had a longer lifespan, and the retailer should refund you. What if it breaks down within a year? Or two years? Is it still reasonable to get a full refund? That’s the timeframe when an extended warranty should come into its own.

Why most extended warranties don't add up

Unfortunately, many extended warranties come riddled with exclusions hidden in the small print. For example, you might be required to have a washing machine serviced regularly, otherwise you'll invalidate the warranty.

Then there’s the cost. Extended warranties can cost a third or more of the product’s original price over a three- or five-year period. Given that, you might decide it would be far better to replace the item if it breaks, rather than pay out for a warranty, particularly if it’s an older model. And, of course, in most cases the item won't break during the warranty period.

What not to do

It’s vital you shop around and don’t just sign up to an extended warranty on the spot. There are specialist warranty companies who will often be cheaper than just buying the warranty from the shop with your purchase.

You should also get an extended warranty that begins when the manufacturer’s warranty runs out, so you’re not paying for cover you already have.

Whatever you decide, don’t be pressured into signing up at the till. Take the paperwork away and have a look at the small print.

If you have signed up for a warranty lasting over a year, you have a 45-day cancellation window (providing you haven’t made a claim) if you bought it in person or 14 days if you bought it online, by post or over the phone.

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