Personal Finance: The appliance of common sense

Think twice before buying an extended warranty for your new stereo system or washing machine

If you are like millions of consumers across the country, you know the importance of reliability when it comes to electrical goods. A broken washing machine or stereo doesn't just leave you with dirty clothes or an eerie silence - it leaves you with a headache.

Repair bills, inconvenience and haggling with retailers can transform a lazy weekend into a gruelling challenge, which is why so many consumers pay for extended warranties. According to Norwich Union Direct, the extended warranty market for domestic electrical appliances is now worth pounds 400m.

However warranties have attracted criticism from consumer organisations. Indeed, it is not even clear that extended warranties are necessary.

"Most extended warranties are a waste of money. Under the Sale of Goods Act you have the right to take things back within a six-year period anyway, so quite often they're selling something to which you're already entitled," says Rory Hegarty, a spokesman for the National Consumer Council.

But this comes with certain caveats. Although the Act states that goods must be "of satisfactory quality", be fit for their normal purpose and last a reasonable period of time, and it applies to electrical goods for six years from the point of sale, there may still be problems when things go wrong.

Notions of a reasonable period of time, "satisfactory quality" and normal purpose are debatable, and the Sale of Goods Act is ultimately enforced by the courts. So if your video recorder breaks after five years, it may not be a case of marching into a store and receiving a replacement.

You may find yourself contemplating a court case, with all its costs and delays. And even if it does not take legal action, exercising your rights may still take time, patience and determination.

Mr Hegarty concedes: "There is an argument with extended warranties, that you wouldn't necessarily have to pursue your rights through the courts." But he still concludes: "If you're paying as much as a third of the price again for an extended warranty then you are wasting your money."

And this leads to the real problem with so many warranty packages: the cost. For example, the cost of a five-year extended warranty for a video recorder can be over half the price of the product.

For a video recorder costing pounds 155, a five-year Mastercare Coverplan service agreement from Currys costs pounds 104. At Comet a Five Star Supercover extended warranty costs pounds 99.99, and at Tempo a five-year Tempo Coverplan costs pounds 79.98. In short, extended warranty agreements sold by these high-street retailers are expensive.

And according to research by Which?, electrical goods are becoming more reliable, and many extended warranties cost the consumer more than paying for repairs.

But retailers maintain that their warranties are excellent value. Steve O'Brien, head of corporate affairs for Dixons Group, says: "We've got very comprehensive policies. Our policies cover you for a lot more than anybody else's do."

But even if Dixons Group's warranties are comprehensive, including extras such as a year's insurance against theft, Mr O'Brien's claims that they are good value for money may leave many unconvinced. Cover against theft will be included under their home contents insurance already.

More importantly, when it comes to the warranty component, there are better deals to be had. For example, John Lewis is offering free extended warranties on certain goods, including five-year warranties for televisions and two-year warranties for video recorders, camcorders, hi-fi equipment and personal computers.

Many manufacturers offer their own extended warranty deals, which may be more attractive than those sold by high-street stores. This is one reason why the hard-sell tactics used to sell extended warranties have attracted so much criticism. People end up taking out a retailer's own extended warranty, unaware that a manufacturer's own alternative is on offer.

Another alternative is a multi-appliance policy with an insurer such as Norwich Union Direct or Lloyds TSB. These cover almost all electrical appliances in the home under one policy, which can often work out cheaper than buying several extended warranties. But, as with all insurance policies, you should check what is covered - camcorders are often excluded, for example.

But the most essential advice is to shop around and consider your needs carefully before buying an extended warranty. And if you do take out an extended warranty and have to make a claim, be aware that the insurance ombudsman may be able to help you if there is a dispute - many extended warranties are actually a form of insurance against breakdown.

Extended

Warranties

at a glance

No extended warranty

More rational than it sounds. If goods go wrong, you are still protected by the Sale of Goods Act, and if you have trouble exercising your consumer rights, paying for repairs may be cheaper than an extended warranty. In the worst case scenario, the most you pay is the price of replacement.

Shop warranties

Beware. Many extended warranties sold by high-street retailers are expensive. However, there are some good deals. Richer Sounds offers extended warranties which are very competitive. Its three-year extended warranty costs pounds 9.99. John Lewis offers free extended warranties on a range of goods.

Manufacturers' warranties

A mixed bag, but some are good value. Dell offers three-year warranty packages free with its Dimension desktop PCs.

Multi-appliance policies

Offered by insurance companies, they cover electrical goods in your home under one policy. Companies offering these schemes include: AXA Provincial, Norwich Union Direct, TSB, Midland Bank and Domestic and General.

Norwich Union Direct 0800-888 777; Domestic and General 0990-494 400; Midland Direct 0800-299 399