MONEY COMMENT
Extended Warranties: Just Say No

By Jane Mack (TMFJane)
August 2, 2004

The news that the Government is to clamp down on the extended warranty market comes not before time. The various authorities have been shilly-shallying around the issue for the last ten years, leaving consumers to pay over the odds for a poor value product - often offered by retailers at the point of purchase.

Shop-bought extended warranties on electrical goods are usually a complete waste of money, not least because consumers are often unaware that, in many cases, they are covered by other forms of protection. For example:

• Your appliance is more likely to break down in the first year, in which case you're covered by the manufacturer's guarantee.
• You are covered by the Sale of Goods Act (which states that goods must be of a satisfactory quality and fit for their purpose), so, if an appliance goes wrong before you might expect it too, the retailer is liable to repair it regardless of whether the manufacturer's guarantee has run out.
• Some credit cards offer free extended cover if you buy the appliance with their card.
• If your VCR goes wrong because your toddler has posted a piece of toast into the slot, you may find you're covered for accidental damage by your home contents insurance.

The best way to cater for breakdowns or replacement of new appliances is to "self-insure". Simply pay all that warranty money into a high-interest savings account so you've got the money available to pay for repairs or a replacement whenever it becomes necessary. It's unlikely that your washing machine, dishwasher, cooker, TV, Video and DVD player are all going to break down on you at the same time after all - and it's usually cheaper to pay for repairs as and when necessary anyway.

The Government is now planning to introduce legislation in time for Christmas forcing retailers to display the cost of the extended warranty next to the price of the item. As warranties can cost as much as half the value of the electrical goods, it should make consumers think more carefully about what they're paying for.

In order to combat pressure selling, customers will have 45 days to cancel a contract that they've bought on the spot and they will also have 30 days to come back and purchase a warranty - thus giving them time to shop around for a better product.

The legislation is to be welcomed but you don't have to wait until Christmas to benefit. The next time you buy an electrical item, think about whether you really need that extended warranty in the first place. If you decide you do, then at least shop around for a good deal.