Why you should skip the extended warranty

Most of the time, that initial offer for a service contract or an extended warranty is way overpriced and does little for you.

I don?t like high pressure sales situations.

Skip to next paragraph Trent Hamm

The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds ? we just want simple ways to manage our finances and save a little money.

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Whenever I find myself in a situation where some cheesy salesperson is trying to give me the hard sell on some product, I find myself walking away. Even more so, I usually find myself getting a negative gut impression of the product being sold, one that?s usually reinforced when I go home and do the research only to find that the product is overpriced or underwhelming.

Case in point: when Sarah and I bought our Prius in 2009, most of the people at the dealership were friendly and hands-off, but there was this one guy who we interacted with that tried to do the hard sell on a service contract.

We were ushered into a small conference room by him where he attempted to do some kind of hard sell on us on a service agreement. It came off like one of those police interrogations on television.

After about a minute, we told him we weren?t interested. I got up to leave and he said, ?Now, just hold on a minute??

I told him, flat out, that I was walking out that door and if I was stopped from doing so, we were leaving the dealership without the car.

That?s how I often react to the hard sell. I just walk out of the room. I don?t trust the ?hard sell? and I?m certainly not going to listen to it. If your product is so questionable that you have to resort to the ?hard sell,? I?m not interested.

Of course, a big part of the reason I walked out is because, most of the time, that initial offer for a service contract or an extended warranty is way overpriced and does little for you. It?s a questionable product, which is part of the reason why they went for the ?hard sell.?

For example, if you?re looking for a service agreement for your car, you?re going to want to make sure that the contract you?re being offered does not merely duplicate things that are already found in the warranty. You?re also going to want to carefully read over the exclusions, because things like ?normal wear and tear? make the service contract nearly worthless (as they?ll claim almost everything is ?normal wear and tear? and thus excluded from the contract). These two factors alone will eliminate most service contracts you could buy.

If you?re still interested in finding one, shop around. Check with various auto repair shops in your area and ask if they offer service contracts. If they do, ask for a copy and review it carefully. The vast majority of contracts that you find will have exclusions and restrictions that make them a pretty poor value.

What about an extended warranty? These usually just extend the terms of your car?s warranty. However, they?re not a particularly good deal, either, because most of the defects in a car show up before the end of the normal warranty and the warranty often excludes things like ?normal wear and tear? (just like that service contract). It?s much like buying an extremely overpriced and very limited insurance policy for service on your car.

In my opinion, your best move is to take the money you would have spent on these things and put it into a savings account. Then, tap that money only when you actually need repairs to the car (repairs that the service contract wouldn?t have covered anyway).

This post is part of a yearlong series called ?365 Ways to Live Cheap (Revisited),? in which I?m revisiting the entries from my book ?365 Ways to Live Cheap,? which is available at Amazon and at bookstores everywhere.?

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