Are Extended Warranties Worth the Money? Here's What Dave Ramsey Thinks

Do these warranties really provide enough protection to be worth the price?

When you buy certain types of products such as appliances or electronics, you may be offered an extended warranty. This is a warranty that goes beyond the standard manufacturer guarantee on the product. And salespeople often push hard to get you to buy it.

While a longer warranty may sound appealing -- especially on an expensive product -- these guarantees can come at an added cost that's sometimes pretty significant. Before you spend the money for one, it's worth considering advice from experts including Dave Ramsey, a trusted financial guru with millions of readers and listeners.

Ramsey urges you to say no to extended warranties

Unfortunately, as the Ramsey Solutions blog explains, extended warranties are not all they’re cracked up to be and there are multiple reasons you should steer clear of them. 

One of the biggest reasons to avoid extended warranties, according to the blog, is that chances are good you aren't actually going to make use of yours. That's because companies selling them have "done the math" and typically make sure the warranties end before most parts are likely to break.

Ramsey's blog also explains that extended warranties typically are not worth paying for because they typically come with many coverage exclusions. Since the most common issues may not be covered under the warranty, you'd be wasting your money by buying one. There's also a risk the company offering the warranty could go bankrupt before you can use it, which would mean you paid money upfront to get no added benefit at all. 

Finally, Ramsey warns that extended warranties are generally overpriced and serve both as huge money-makers for the companies and for the sales people who get a commission for up-selling them to unsuspecting consumers. 

Is Ramsey right?

When it comes to extended warranties, Ramsey's warnings are spot-on. In most cases, the manufacturer warranty that comes with the products you're purchasing is sufficient to protect you from unexpected issues, and the extended warranty isn't worth the high price you pay for it.

Rather than buying an extended warranty that could simply come at an unnecessarily high cost, Ramsey urges putting money into an emergency fund instead. If you put more money into emergency savings, you can replace essential products if they happen to break -- without worrying about whether a warranty provider will provide the expected coverage. And if the items don't break down, you'll have the money saved for other things.

You may also want to look into whether you have a credit card that offers an extended warranty as a cardholder perk. There are some cards that provide an additional warranty once the manufacturer guarantee expires. If you have a card offering this kind of purchase protection, you can get the extended warranty at no added cost to you -- and it will be through a card issuer, rather than a third-party company you may not be able to trust.

It's especially important to use a credit card with this kind of extended warranty if you're buying expensive items. By doing so, you can get the benefits of an extended warranty without paying any unnecessary added costs.