When customers purchase a vehicle, appliance, or an electronic item the merchant may try to encourage them to buy an extended warranty (also known as “service contracts”). These are legitimate contracts. They are intended to extend the period of warranty coverage in the other manufacturer warranties that come with the product. These contracts can be a source of significant profit for stores, which get to keep up to 50% of the amount customers pay for the warranty.

Rarely will customers need to exercise their rights under an extended warranty or service contract. Quality vehicles, electronic equipment, and appliances do not usually experience problems during the first few years of their use. If they do experience problems during this time, they are usually covered by the original warranty. Besides, such merchandise often has a useful life well beyond the length of the extended warranty.