Are Extended Warranties And Service Plans Worth The Cost?

It’s Christmas time and money is tight. Most people try to save money here and there to stretch their dollars and avoid excess debt. After all, that’s the reason for getting up before dawn on Black Friday or pushing away from the Thanksgiving table to rush off to a door-buster sale late on Black Friday eve.

People shop hard and plan carefully to find the best prices for expensive items. They fight the crowds, find the item, and finally get to the checkout aisle. After waiting too long in line and having the clerk total up your order, the question that most consumers may not have given sufficient thought to is asked, “Are you interested in an extended warranty (or service plan)?”

The clerk goes on to explain, sometimes with the fervor of a high-pressure salesman, what the warranty or service plan covers and why you’d be crazy not to buy it. It sounds pretty airtight, and you nervously wonder if it’s really a good idea. The item being purchased is a lot of money, after all.

Considering the short time available to make the decision, the realization that things can go wrong with purchased items, the possible effect of a repair bill on your monthly budget, and the people in line behind you shifting impatiently from one foot to the other, many shoppers reluctantly agree to the warranty and its additional cost. As you walk out of the store, the increased expenditure stings, having eaten away at the savings in your carefully-crafted Christmas spending plan.

You wonder — Should I have purchased the service plan?

The stores certainly find them attractive. According to Consumer Reports, stores keep half or more of the money they charge for these contracts. The plans are extremely profitable and well worth training checkout staff to push them. Consumer Reports goes on to point out that a survey showed that 85 percent of checkouts included a pitch for an extended warranty, and that 15 percent of shoppers in stores were likely to buy a service plan compared to six percent of on-line shoppers. Consumers can expect to shell out a median increase in $118 for a major appliance service plan and $37 for a plan for a small appliance. This can be a severe blow to your budget, especially if you are purchasing several items as is common during the holidays.

Many knowledgeable sites, like Consumer Reports, will tell you that service plans are not typically worth it. Most products do not require repair during the warranty period. Think about the items around your house and the instances, in the past, where warranty work was necessary. The fine print in extended warranties may also disqualify many defects from coverage.

USA Today suggests that if you are considering purchasing a service plan, do some research ahead of time. Find out what the actually manufacturer’s coverage would be for the item you wish to buy. Credit cards sometimes offer extended warranty coverage on purchases. Purchasing established brands with reputable companies will help to reduce the instances of problems. Remember as well that the manufacturer’s warranty begins at the time of purchase, the same as the plan you purchase, which means that you are paying double during the term of the manufacturer’s coverage.

Finally, consider that if you continually turn down the offer of extended warranties, the cost of a repair required on a purchase at a future time may still be less than the overall savings over time for the plans you did not buy.

An extended warranty can have a pronounced effect on your holiday budget. There are a number of factors to consider before paying out money for a service plan that is not worth the cost. Carefully consider the need and alternatives to these plans before purchasing one.