Why extended warranties are a waste of money?

Ramsey's blog also explains that extended warranties are generally not worth paying for because they usually come with a lot of coverage exclusions. Since the most common issues may not be covered by the warranty, you would be wasting your money buying one. Warranties or extended service plans work like insurance, Hunter said, and for every dollar you spend, they'll only give you a few cents back. Extended warranties, or service contracts, as they're often called, promise peace of mind when repairing a car.

At the very least, read the other small print of any extended warranty carefully, as coverage will have many limitations. There is an entire ecosystem of third-party firms that offer extended warranties, especially for consumer electronics and appliances, with names such as Asurion, Assurant and SquareTrade (owned by AllState). Repairs with an extended warranty often take forever or require several attempts to get it right, much less if you simply pay for a direct repair. Whenever a product, even a refurbished product, has some kind of manufacturer's warranty to begin with, most major credit cards will offer an extended warranty.

Extended warranties often have a lot of restrictions, such as what is covered and where the vehicle can be repaired. Retailers may often try to sell you an extended warranty by including a built-in “lemon law” provision. After all, if you were most likely to come out like a crook, the insurance companies that issue and back these guarantees would raise the price even higher and correct any discrepancies. If you can actually go shopping in your local area, repairing the lawn mower or refrigerator may cost less than the price of the extended warranty.

From having to contact a third party, to waiting to dealing with people who speak English as a second language, some extended safeguards seem designed to confuse, redirect and thwart the initial efforts of those trying to file a claim. What they ARE trained to do is to sell extended warranties and (hopefully) explain to you how the product works and what features it has. Keep a copy of the receipt and the original warranty when you buy; you may need them to make a claim on the extended credit card warranty, if any. All of this should give you a very clear idea that an extended warranty is NOT the best thing for the end user.

In fact, extended warranties offer much more profit in almost 90% of cases than those obtained with the item actually sold. Companies issue extended warranties to do everything in their power to ensure that they DO NOT have to repair or replace the guaranteed item. One of the reasons retailers push for extended warranties is that, if enough is sold, they can lower the retail prices of products themselves and sell even more.