By Aaron Crowe
With profit margins that industry analysts estimate exceed 50 percent, it’s easy to see why retailers promote extended warranties on everything from computers to cars.
Having future repair or replacement costs covered can indeed be reassuring. And even just knowing where to call can reduce stress. “Service contracts are designed to minimize the hassle associated with downtime and repairs, while maximizing a product’s functionality and the owner’s enjoyment of the product,” says the Service Contract Industry Council, or SCIC. The trade association’s members offer about 80 percent of all U.S. service contracts, a term used interchangeably with extended warranties.
But experts warn that the peace of mind comes at a stiff price that can be hard to justify, particularly if you charge it and pay financing costs as well.
“I never buy extended warranties,” says James Ward, a marketing expert at Arizona State University and director of its full-time MBA program.
Ward’s aversion to extended warranties is widely shared. Consumer experts say that savvy shopping and solid financial planning can help you prepare for breakage or repairs without forking over big bucks for a contract you may never use. The keys are to do your research, explore alternatives and don’t let fear drive your decision-making.