Don't fall for this shopping rip-off at the checkout

December 14, 2012, 1:29 pm Simon Ward lovemoney.com

Extended warranties are a profitable sideline for many retailers, but a bad idea for most shoppers.


If you buy any electrical products in the run-up to Christmas or January sales, chances are you'll be offered an extended warranty. The same thing will probably happen if you buy a car.

The salesperson will tell you they offer “peace of mind” should the product develop a fault during the warranty period. But, more often than not, you’re paying a very high price for that peace of mind.

Manufacturers' warranties and guarantees


Many products come with a free guarantee or warranty from the manufacturer, and these generally promise to give a free repair or replacement if the product goes wrong within a specified time, usually one year.

However, if you buy something that is faulty you have legal rights against the retailer under Australian Consumer Law. These laws state that if something goes wrong with the goods, within a reasonable time frame, then you are entitled to request a repair, replacement or refund.

When the warranty or guarantee has run out, you may still be able to rely on your Consumer Law rights if the product develops a fault within a reasonable timeframe.

But it’s difficult to define ‘reasonable’. If something you buy breaks down within a week, it is ‘reasonable’ to presume that the product should have had a longer lifespan, and the retailer should refund you. What if it breaks down within a year? Or two years? Is it still reasonable to get a full refund? That’s the timeframe when an extended warranty would come into its own.

Why most extended warranties don't add up


Unfortunately, many extended warranties come riddled with exclusions hidden in the small print. For example, you might be required to have a washing machine serviced regularly, otherwise you'll invalidate the warranty.

Then there’s the cost. Extended warranties can cost a third or more of the product’s original price over a three- or five-year period. Given that, you might decide it would be far better to replace the item if it breaks, rather than pay out for a warranty, particularly if it’s an older model. And, of course, in most cases the item won't break during the warranty period.

What not to do


It’s vital you shop around and don’t just sign up to an extended warranty on the spot. There are specialist warranty companies who will often be cheaper than just buying the warranty from the shop with your purchase.

You should also get an extended warranty that begins when the manufacturer’s warranty runs out, so you’re not paying for cover you already have.

Whatever you decide, don’t be pressured into signing up at the till. Take the paperwork away and have a look at the small print.

If you have signed up for a warranty lasting over a year, you will have a cancellation window (providing you haven’t made a claim) if you bought it in person or online, by post or over the phone.


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