 Personal finance, presentation, warranties. Time to get financially fit practicing personal finance. Warranties, what are they? Written guarantee from manufacturer or distributor specifying the conditions under which the product can be returned, replaced, or repaired. So when making a purchase, we would like to know especially when making large purchases under what condition the product can be returned, replaced, or repaired. We would also like to know under what conditions the product is likely not able to be returned, replaced, or repaired. Likely the conditions not listed out in the warranty. We can break the warranty into two broad categories, express warranties, and implied warranties. The express warranties are those warranties that are usually written types of warranties which can either be the full warranty or a limited warranty. When we're thinking about an implied warranty, that's kind of the warranty that goes along basically with the purchase, so that would be the warranty of title and the warranty of merchantability, merchantability. Express warranty, an express warranty is an agreement by a seller to provide repairs or a replacement for a faulty product, component, or service within a specified time period after it was purchased. Buyers rely on these promises or guarantees and sometimes purchase items because of them. So obviously these could add to the value of a product, give us a better feeling of security. They become more and more valuable as we're buying larger products, larger products that are gonna have an impact to us for more periods into the future. Likely we're going to be using them and therefore they are more of an investment to us. When we're talking about smaller products in terms of dollar amount, as well as how long we might be using those products, these warranties might not be as valuable because the added cost that the company might put into place in order to have the warranties might not warrant the added value that they're gonna be providing if the dollar amount of the product itself is below a certain threshold. So that's kind of the factors that we wanna be taking into consideration when we're thinking about if we have the option, for example, to take on a warranty or be doing a business with a company that provides a warranty possibly versus someone that does not and there possibly could be a price differential that will be implied there as well. So a warranty is an assurance that an item will live up to the promises of the seller. So when the seller is giving a warranty in part, they're basically giving you the assurance, which is good. That's what we would like to see from the purchaser side of things. We would like to see, hey, they're backing up, they're supporting their product. Hopefully I don't have to basically cash in the warranty, hopefully I don't have to get the repair that's gonna be needed. Hopefully I don't have a default of product. So that's one of the reasons that the warranty is going to be put in place. If you have to purchase the warranty over and above the purchase price that starts to make you feel like that might not simply be confidence in the product but might be another basically revenue stream or revenue source. And it gives me a little bit more skepticism about the purchasing process of the added warranty. And obviously we have another decision to make with that added purchase of the warranty as to you, whether it's worthwhile to have that added level of protection versus the cost that you're gonna be purchasing for the warranty. Under the Magnuson Moss Warranty Act passed by Congress in 1975, a company that provides a written express warranty is subject to federal guidelines and must comply with the act. Which could be a good thing considering we're talking about a promise that's made at one point in time that's gonna have an impact possibly into the future. And that's a good thing that might be subject to regulation. The act provides consumer protections in the case that a company does not adhere to its written warranty. An express warranty can be worded in many different ways. It may say something like, quote, we guarantee all furniture against defects and construction for one year when a structural defect is brought to our attention we will repair or replace it. So we're making these products up to a certain standard. You can kind of give a general visualization of this. And if you see that you have a product that's not put up to the general standard, there's a defect in it. That's what the warranty says or looks like it is compliant to here or addressing. So most express warranties come from the manufacturer or are included in the seller's contract. They can also be created by a simple statement on an advertisement or in a sign in a store. Details about a product or service that are outlined in an advertisement can set the precedent for an express warranty. Claims made in advertisements about the quality, functionality, lifespan and efficiency of a product can constitute an express warranty. If the product does not meet the standard set forth in the advertising or suffers a breakdown within a set timeframe, the customer may be entitled to free repair service or when possible, a full replacement. Not every claim a seller makes is enshrined in warranty law though, exaggerated statements that sometimes appear in advertising do not necessarily constitute express warranties. For example, if an automaker makes a claim that its car is, quote, the best in the world, end quote and the purchaser after several road trips disagrees with this statement, they are not necessarily eligible for a refund unless specifically stated. So obviously you got like hyperbole, you got some overstatement that is applied there and it's probably a kind of overstatement that we would assume to be overstatement and not basically an express warranty in those cases. So example, e-commerce companies typically include express warranties on the goods they sell in part because of the nature of how online shopping is conducted. So when you're talking about online shopping, the warranties can take another level of significance because you don't have the capacity to come physically look at the item as you can like in store shopping. So the customer cannot try on or physically examine merchandise they are about to purchase in that situation, how the product functions and looks when it is received can dramatically differ from what the customer envisioned while browsing online. So clearly you can represent the product in an online type of service and not show the quality of the items that are being placed in it or possibly even the size of the item, you can clearly distort those types of things within online shopping. So again, that kind of warranty process is gonna be more valuable or could be more valuable as we go forward with the online purchases. The inclusion of an express warranty gives them some sense of surity that issues with the purchase will be rectified in some manner. For example, if a consumer buys a business jacket online, but when it arrives, the item is the wrong size, wrong color or is missing buttons and express warranty might entitle the consumer to a refund or replacement. In such cases, the online seller is usually responsible for footing the bill for any additional shipping charges. So clearly when you're dealing with the online kind of situation, if they showed you one thing and they gave you something that's completely different then you would hope that it would be covered in the express warranty, then you have to deal with the process of the replacement process which will include added shipping costs and hopefully the seller is responsible generally for those and those instances. Auto sales, auto dealers tend to advertise express warranty terms for repairs on the vehicles they sell. So clearly when you're purchasing an automobile, then it would be nice if you get some kind of assurance on the repairs that might be put into place because that gives you more insurance on the purchasing process generally as well. This can include stipulations on mileage and length of ownership that limit the extent of that coverage. So typically when you're talking about the coverage of repairs, they're comfortable giving the coverage up to a particular mileage possibly or a particular number of years to give that added level of assurance and after that point in time, that's gonna be the limitation. After the vehicle is owned for a certain amount of time or driven beyond the mileage limit, the express warranty would no longer be applicable. Express warranty versus implied warranty. Express warranties are specific promises made by a seller to a buyer either or orally or in writing. So oftentimes you'll see those in writing but you could have an oral express promise where they're just telling you the promise and the absence of communicated guarantees and implied warranty may come into force. So the implied warranty is something that might not be more likely in writing but implied within the purchasing process. So implied warranties are unwritten guarantees that a product or service should work as expected. So clearly if you're purchasing something for a particular purchase purpose, then you would expect it to work for that particular purpose and you would also expect that the person that's selling you by the fact that they are selling you something title to it, meaning would mean that they actually owned it. They had the capacity to give the title to you. Those would be kind of assumptions that you would think would be implied just simply within the purchase process, for example. So for example, if you buy a set of headphones, you would expect them to function when you first use them unless you were told otherwise when you agreed to purchase them. So if you buy headphones, you would think the functionality clearly of the headphones is to work as headphones. If they don't work as headphones, you would think that there's been a violation of an implied warranty just in the terms of the purchase that has been made. The Uniform Commerce Code, the UCC makes reference to and quote implied warranty of merchantability, in quote, stating that any goods sold in a transaction must fit for the ordinary purses for which it is typically used. So, you know, the items have a T list. They have a purpose. They have a reason. And if they don't, if they can't be used for that particular reason, it's pretty clear that something's wrong. So correction, March 8th, 2022, a previous version of this article incorrectly. Extended Warranties. An extended warranty is basically an insurance contract. An extended warranty or service contract works like an insurance contract for the product you purchase and is typically sold by the retailer at the point of sale, although it's often possible to buy one afterward from a third party as well. So while the price of an extended warranty often seems like a bargain when compared with the steep price of repairs, it's important to realize that retailers and other providers offer warranties for a simple reason, they make money. So this is the warranty where you're looking at the extended warranty that you're purchasing separate from the purchase price. So when you're thinking about the purchase price of something, if there's a warranty, a guarantee that is involved within the purchase price, that usually gives you a sense of security that they're giving you confidence about the value of the product. But if you're buying an extended warranty over and above the purchase price, that often gives you the feeling that they're doing that basically to make money. That's another basically revenue source or revenue stream. That doesn't necessarily mean that it's not worth purchasing the extended contract, but it is something that, of course, we want to be taking into consideration. We wanna be thinking about whether or not the coverage that we are going to be getting is gonna be worth the added price that it's gonna cost us for the added price. That's gonna involve taking into consideration how valuable is the item? What's the dollar amount of the item that we're purchasing? What's the dollar amount of the purchases or the repairs? If there were repairs, what's the likelihood that the repairs will be taking place in the future? Somewhat of a complex kind of calculation to put together, but those are the general things that you wanna be putting together. And oftentimes, if you do a little bit of research online, many people have looked into different kind of extended warranties and done research on them. And you can usually find some pretty good resources saying whether or not the extended warranty in certain situations is a valid extended warranty or just basically a revenue stream by the seller of the product. So companies use probability metrics to calculate the likelihood that your new refrigerator, flat screen TV, or car will require repairs. This figure is weighed against how much those repairs would cost on average, needless to say the company offering the policy is looking to come out ahead. So clearly when they make these calculations with regards to the insurance policies, they're gonna do the calculation on there and try to determine how likely the cost is going to be. And they're gonna be making generally some profit margin, you would think, on the extended warranties. So extended warranties can be big money makers for retailers, according to data from the Allied Market Research, the global market for service contracts reached 120.8 billion in 2019 and is projected to hit 169.8 billion by 2027. Extended warranties continued, but do you need that insurance? So that's of course the question, should you be purchasing the extended warranty? What are you gonna do? You wanna be prepared by the way when you're purchasing something over a certain dollar amount for someone to be asking for the extended warranty, I would assume that if something is under a certain dollar amount that the default answer would be no, I don't want the extended warranty, I'll just buy another one in the event that I happen to be the unlucky person that purchased the defective item here, for example. But if you're buying anything over a certain dollar amount then it's more and more likely that an extended warranty might be an option to take a look at and that's when you want to be armed, you wanna be ready, you wanna have already done the research, especially if you're going in person to talk to someone that you know is a salesperson that's gonna go through and offer you an extended warranty and give you possibly a whole pitch on it and everything. So warranty providers know that in most cases you won't actually need the coverage they offer according to consumer reports, about 40% of new refrigerators will need repair within their first five years of use. That percentage is even smaller for other categories, it's 30% for dishwashers for example and 20% for closed dryers. So you're buying insurance against the idea or the possibility that you've got one of the products that are gonna need the coverage. So that doesn't mean the insurance is invalid because that's always why you buy basically insurance, you buy car insurance in case you get in a car accident or something like that, hoping that you don't get in the car accident but then the question is, is that coverage, that safeguarding of the risk worth the added price? So when there's a problem with those products the consumer organization says the price of an average repair is no more than the cost of the warranty. Certainly some shoppers experience usually pricing defects and end up happy that they bought extra coverage but they're the minority. So basically generally if you're talking about even a moderately priced item then the warranty oftentimes if you work it out isn't worth the price is often gonna be the calculation. So that's why experts often advise consumers to consider carefully whether a warranty is necessary before handing over their money. So clearly when you go in and buy something like a refrigerator or dishwash or something like that you probably wanna do the research upfront and be ready to confirmly and firmly say to the salesperson, no on the warranty if that's the conclusion that you have come to or at least be able to justify whatever decision you're making and just like anything if any salesperson's given you pressure about a warranty or anything else you're ready to just walk out at any point. You can always buy a refrigerator elsewhere if you're feeling so. Today's appliances are fairly reliable. Don DeClorico of HomeAdvisors.com told Consumer Report in 2018 quote the chance that your refrigerator or dishwasher actually needs repairs during the extended warranty period is pretty low. There may be expectations where we're paying for extended coverage makes sense. So there could be areas where it might make sense to do so for example smartphones tend to take a lot of abuse because they're carried virtually everywhere. So clearly the phones is another one where the warranty comes into play phones are gonna are something that are more likely to be subject to problems because they're gonna be carried around all the time. Clearly if you're looking into a warranty for the phone you wanna do research on that and you also wanna think about what kind of things are covered in the warranty? Like if you lose, if you dive into the ocean with your phone or that kind of thing is that covered? Cause it's kind of your fault on that one. But that's the likely thing that might short out the phone you would think. So some consumers may find that a service contract on their device provides a peace of mind and the majority of cases though you're likely better off putting a few hundred dollars into a savings account for future repairs or the purchase of a replacement. So in other words, do your own insurance kind of policy there and that's a good idea with any large purchase like a car even or appliances and so on. You wanna think, hey, I'm gonna need to replace these things every five or 10 years or something like that if they short out before that if I got unlucky with the purchase of it then I don't need to have it covered by someone else. What I wanna do is put my own money away because the odds are that I'll be better off that way anyways and if I happen to be an unlucky person I gotta buy a new fridge then I buy a new fridge or dishwasher or whatever. So one advantage of self-insuring is that unlike a warranty, your account won't expire. It's also a good idea to take four brands that have a reputation for quality. So typically you wanna buy those brands that have the warranty in the price in that they're typically, they might be higher brands because people depend on them rather than buying the extended warranty on a brand that is not as reliable if possible. So that helps minimize the risk that you'll need to have your purchase fixed for several years. Extended warranty continues, what's really covered. Many products come with a standard manufacturer's warranty free of charge. So typically if you purchase something you got like the manufacturer's warranty. This warranty is often good for the first year or first few years of the product's life. Extended warranties therefore often provide overlapping coverage that may end up being unnecessary. So the extended warranty if they're saying hey we're covering something that's already covered in the standard warranty then obviously you're not getting a real benefit on that overlapping timeframe. Even if the product you purchase has a shorter manufacturer warranty you may find that the service contract doesn't provide coverage you thought it does. So it's really annoying if you thought that you were covered under the warranty but then for whatever reason you're not covered under that thing. What, I couldn't get coverage cause I dived in the ocean with my phone. What kind of warranty is, service contracts contain a lot of fine print that consumers don't always have the time and or patience to read through before they sign. They often limit cause you're usually just pressured into doing it from the salesperson. They often limit what parts are covered or contain stipulations involving where you can have the item serviced. For example, independent stores may require you to bring the device or appliance somewhere local for service that may not help much if you move to another state. So extended warranties continued. What to look for? Should you decide to pay extra for an extended warranty? It's important to know what it is that you're actually getting. Here are some questions to ask before signing on. So you wanna ask these questions if you're thinking about the extended warranty and you probably wanna think about them before you go in and get pressured with regards to the extended warranty. Is it likely to need repairs? So the thing I'm buying is it likely that it's gonna need repairs? Some electronically electronics rarely create problems during the first few years of use. So more and more stuff is getting reliable, hopefully more and more reliable. And if that's the case, you might not need it in the first few years, just on average. Researching dependability data from sources such as consumer reports can help you decide whether the risk is substantial enough to justify the cost of a service contract. What does the agreement cover? Consumers often are often surprised to find out that the components most likely to go bad aren't actually covered by the add-on warranty. So clearly you want the thing that's gonna go bad to be covered on the warranty. Some companies also insert language that gets them off the hook if you modify the product in any way or don't perform routine maintenance. So they're gonna say, did you do ABC or D? No, well then we don't give you the warranty because you didn't do your maintenance. Taking a few minutes to read the details of the contract can save a lot of heartache later. So what's the process for making a claim? Depending on your contract, repair work might be handled by the manufacturer, the store, or third-party independent company. So if you've got a warranty, you're trying to get the warranty, you're trying to turn in the warranty, get the claim, then where do you go? Is it gonna be the manufacturer? Is it the store? Is it the third-party or an independent contractor that's gonna be helping you out with it? So you'll want to find out ahead of time, do you have to take it to the same place where it was purchased or is there a network or stores or repair shops where you can go? So in other words, you're probably gonna be wanting to contact the place you purchased it from and they'll direct you from there to determine where's the place you're gonna go to get the warranty serviced. So is there a deductible? Even if your repair is covered by a warranty, the work isn't necessarily free. Check the contract to see whether it requires a deductible or free for service work. You also want to find out if there are any associated expenses such as shipping costs that aren't covered. How reliable is the servicing company? A warranty is only as good as the company behind it. Most of the time, people buy service contracts from a retailer, but some companies cold-call consumers with offers for extended warranties. If you don't know the organization's reputation or feel nervous about offering your credit card information over the phone, it's better to steer clear. So third-party, you wanna be careful with the third-party warranties you would think. Extended warranties, the bottom line, although warranties may seem like a nice perk that companies extend to consumers, they are actually carefully calculated to be profitable for the companies that offer them before you agree to ensure your next big-ticket purchase against failure. Carefully consider the likelihood that the product will fail as well as how much it would cost you to repair or replace it. In many cases, your best course of action is to bet that your appliances and electronics will outlast the warranty.