Warranties and service contracts 101
Ever wonder about the difference between a warranty and a service contract? Well, wonder no more.
Many consumer products, including cars, appliances and electronic devices come with a warranty — the manufacturer’s promise to stand behind the product. Warranties are included in the price of the product. If a company offers a warranty, it must be available for you to read before you buy — even when you’re shopping by catalog or online. It’s the law. However, what a warranty covers varies. So, when you’re shopping for things by price or style, consider comparing what the warranty covers, too.
A service contract is sometimes called an “extended warranty,” but service contracts are not warranties. A service contract can help you fix or maintain your product for a specific time — like a warranty. But, unlike a warranty, service contracts cost extra. When you’re shopping, compare specific manufacturers and products. You might find that some service contracts give you the same coverage you get from the warranty that is included in the purchase price. Some service contracts cover only part of the product, and some make it nearly impossible to get repairs when you need them. And, if repairs are cheap, you might not really benefit from the extra cost of a service contract.
Auto service contracts are different. They’re sold by car manufacturers, dealers, and independent companies. Usually, they won’t kick in until the manufacturer’s warranty expires. If you’re thinking about an auto service contract, shop around so you understand exactly what you’re buying and to ensure you are not buying overlapping coverage. What you get varies widely, as does what you pay for it, so be sure you know what the service contract covers.
No matter what you’re buying, some consumer advocates suggest that you might be better off skipping service contracts. Instead, they recommend putting that money in a savings account. That way, if you need repairs, you’ll have savings to fall back on. And if you don’t need repairs, you’ll have some cash in the bank.