Extended Warranties: Some Are Worth It, Most Are Worthless

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At a casino, the odds are always with the house. When it comes to extended service contracts and extended warranties, the same rule applies, but the sellers win with different bets -- that you'll never use them, overpay for them, or fail to understand what's covered.

Warranties can cost you plenty, and extended warranties have plenty of fine print. You need to read them before you sign, and do the math to determine what the chances are that one will pay off for you. The odds are already stacked further against you if you don't.

And you may have more rights than you realize to make a manufacturer or retailer address an issue. The Federal Trade Commission offers guidelines on extended service contracts.

Auto Extended Warranties

Consumer Reports characterizes extended auto service warranties mostly as dealers' last-ditch effort to get more of your money. They're an expensive gamble for you, and sheer profit for them. Even if you do have to get a repair, that contract enures you'll come back to the dealership.

A 2013 survey of 12,000 Consumer Reports subscribers found of those who purchased extended auto warranties, a staggering 55 percent never used them. Those who did spent a median of $375 more overall compared to those who paid out of pocket for repairs.

Popular Mechanics, on the other hand, sees some value in extended warranties -- with notable caveats. In an article forthrightly headlined How to Get a Used-Car Warranty and Not Get Screwed, it cautions that a warranty on a certified pre-owned car is likely to be useless, since the car has been vetted and found to be in good shape. But for luxury cars and hybrids that can be expensive to repair, Popular Mechanics in most cases advises getting a warranty -- even for cars that are certified pre-owned.

Both publications point out that buying a reliable model is the best insurance against costly repairs down the road. Both also caution against buying an extended warranty from a phone or mail solicitation as these are frequently scams.

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Annalisa Kraft has no position in these companies.

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John Fitch 5 years ago Member's comment

I bought a warranty on my BMW but did not on my Ford. Actually, sold the BMW once the warranty expired because the cost of repairs (which were needed suspiciously often) were just outrageous. Definitely agree with the article!