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September 10, 2021

Are extended warranties worth the money?

Consumer experts have long recommended against buying extended warranties, a high-margin profit centre for retailers.

Most products don't break down within the extended warranty period and even when they do, repair fees generally end up costing the same as money you shelled out, they maintain.

But now a recent study in the Journal of Consumer Research examines the reasons why so many of us ignore this sensible advice, throwing money down the drain instead.
According to a group of researchers led University of Maryland prof Tao Chen, consumers are more prone to buying warranties for "fun" products such as game controllers or iPods than for utilitarian products like printers, largely because the disappointment that accompanies their potential loss. 

Price discounting also makes us more susceptible. For example, when we discover an unadvertised price promotion after coming to a store, we’re more likely to use the unexpected savings to buy service contracts.

The researchers also discovered that low-income buyers are more likely to buy extended warranties than wealthier customers, largely because they worry about simply not being able to replace the product if it breaks down.

Tell us: When and why do you buy extended warranties?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...