The Ugly Truth About Extended Warranties

Jun 10, 2018



In this blog I’d like to talk to you about something which is a real bugbear of mine - extended warranties and guaranties, which have become commonplace over the last few years. I remember, growing up, that whenever you bought something, particularly something electrical, it would just come with a standard year’s guarantee and that was the end of it. Most of the time, if something was going to wrong, it would go wrong within the first two or three weeks and the shop would simply take it back and exchange it and that was end of the matter.

These days however, the retailers have cottoned onto a really good wheeze, which is they’ve managed to convince us that a year’s guarantee is no longer enough and so they always try and sell us an extended warranty. They'll say, for only an extra £10, £20, £30 (or whatever it happens to be), you can extend that guarantee for another two or three years. Of course, that's very appealing to most people because, if you think about it, none of us like risk, so it’s very tempting indeed, when you’re buying something, to think “if it breaks, I’d love someone just to repair it or give me a new one for free.” However, the reality is it’s not free – far from it! In almost every case, you'll end up spending money you don't need to spend.

To change your mindset, ask yourself the following three questions:


Question 1 – How likely is the product to go wrong?

More often than not, if something is going to go wrong, it's likely to happen in the first few weeks, certainly within a period of the standard manufacturer's warranty. And usually, if it does go wrong, the issue isn’t so much the length of the guarantee, it’s trying to dig out the paperwork to prove to the retailer when you actually bought it!


Question 2 – Is the guarantee good value for money?

The other day I was offered an extended warranty offer on a toaster, but the toaster was cheap - something like £22! They wanted me to pay an extra £10 to extend the guarantee from like a year to two years. For a surcharge of almost 50%, I’d be covered should the toaster develop a fault – only in its second year of use (the first year was covered by the manufacturer’s guarantee). To me, the odds on that are so low I’d much prefer to take my chances and save the cash. The point is, retailers only sell such warranties because it’s a way to make significantly more money because what they know is that once you’ve decided you're going to buy an item, you are already in ‘spending mode’ so it’s much easier for them to persuade us to spend a little bit more. However, the reality is quite often that the price of that warranty is quite disproportionate to cost of the item and it's money that you don't need to spend.


Question 3 – Can I ‘self-insure’?

Why buy an extended warranty if the risk of needing it is really low? Instead why not self-insure? By that I mean don’t take out the extended warrantee but instead build up savings by putting away some cash every month into an ‘emergency fund’ so that if you do need to repair or replace something, you’ll have the funds to do so. That will save you much more cash in the long run, that’s for sure.

 Next time you’re offered an extended warranty, get into the habit of saying no, every time. It might seem like a small step, but small actions, over time, can yield amazing results!


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