Word of Advice

5 November 2007

Extended warranties

Have you ever bought a new television, or another expensive item, at a shop and not been offered an extended warranty? Whenever you buy a new fridge, washing machine, dishwasher or anything else for that matter, you’re more than likely to be confronted by an eager sales assistant offering to sell you an extended warranty. Truth be told though, most of the time when you buy consumer goods for personal use you don't need an extended warranty.

Should I get an extended warranty?

• Remember you are already covered by the Consumer Guarantees Act - so why pay more for rights that you already have? The Consumer Guarantees Act says that you have the right to a repair, replacement or refund if goods are not durable - in other words, if they do not last without fault for a reasonable length of time.
• Extended warranties may be overpriced. Studies in the Unites States show that profit margins are between 40-80% on the sale of these warranties. After an investigation by the Office of Fair Trading, the UK has introduced new rules for retailers selling these warranties.
• Most manufacturers provide a warranty to cover things like parts and labour, normally for a year or two. But be careful with warranties from traders, some traders may charge you a $60 ‘bond’ before they will even consider a claim under your warranty.
• And this reason is so good we are going to repeat it…you are already covered by the Consumer Guarantees Act!

So what does the Consumer Guarantees Act say?

All consumer goods sold in New Zealand are covered by the Consumer Guarantees Act. This act says that all goods must:

• Be of acceptable quality – fit for the purpose they are made for, be safe, last for a reasonable time, have no minor defects and be acceptable in look and finish.
• Be fit for a particular purpose – if there is something special you want a product to do, make sure you describe the ‘particular purpose’ to the trader so they can make sure you get the right product.
• Match the description – if you buy a refrigerator that is described as having automatic defrost, it must have that feature.
• Match any samples – if you order a car based on a showroom model, the one you receive has to match the model you saw.
• Have spare parts available – unless you’ve been told that it’s not possible, you have access to repair facilities and spare parts for goods you buy. Be careful if you buy discontinued models, as the spare parts may not be easily available.
• Have the right to be sold – the trader must be able to pass all the ownership rights or title over the goods to you. The trader must tell you when someone else has rights over the goods, such as a security interest over a car.

Are there times when I should consider buying an extended warranty?

You should think about whether you will need extra cover. But remember to read the fine print; there may be some exclusions that the warranty doesn’t cover, like certain parts, faults or costs.

If you’re going to use the goods for your business, a warranty may be useful because you won’t have the protection of the quality guarantees given under the Act. Also, if you’re buying goods at an auction or by tender a warranty may be useful as, again, you won’t have the protection of the Consumer Guarantees Act.

For further information on the Consumer Guarantees Act, visit the Ministry of Consumer Affairs website.