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SHOPPERS ADVISED TO THINK BEFORE TAKING OUT EXTENDED WARRANTIES

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As consumers get ready to spend for Christmas, the Office of Fair...
As consumers get ready to spend for Christmas, the Office of Fair

Trading is advising them to think first whether extended warranties

give good value for money.

Also known as service agreements, extended warranties usually pay for

repairs, and accidental damage. They can cost up to half of the

purchase price of some appliances, for example computers, stereo

systems, washing machines or fridge freezers.

Consumers should think carefully before buying an extended warranty.

Leaflets are being distributed in shopping centres posing the

questions:

- do I need more time to make my decision?

- do I need this - or am I already covered?

- what are my alternatives? For example, using a local repairer if an

item breaks down.

Last year the extended warranty market on 'brown and white goods' was

worth around£800m. This figure is expected to reach£1bn

by 2006.

Research conducted by the OFT indicates that customers can feel

pressurised to rush to a decision to buy an extended warranty when

they buy their new appliance. A high percentage of consumers had not

thought about buying an extended warranty before they arrive at the

store. Buyers should think whether extended warranties offer them

value for money. OFT research found that the average washing machine

repair costs between£45 to£65. So if a five year extended warranty

costs£150 on a£300 washing machine, it would need to break down

four times for a consumer to benefit.

A recent WHICH report highlights that modern domestic appliances are

generally reliable. It found that 81 per cent of washing machines

didn't break down at all in the first six years.

The OFT also reminds customers that they may already be covered

by law, or by their home contents insurance.

Some sales staff are paid commission on each extended warranty they

sell, so may be keen for a customer to sign on the dotted line. John

Vickers, director general of Fair Trading, said:

'Many people buy extended warranties as an afterthought. Our message

is: think before you buy. Don't feel under pressure. Think whether an

extended warranty is good value for you, and if it is, think where

best to buy one.'

The Office of Fair Trading has referred the question as to whether

competition is working in the extended warranty market to the

Competition Commission, which is investigating and due to report to

government next July.

NOTE

1. The OFT has published a leaflet 'Extended warranties: think before

you buy' which will be available at trading standards offices and some

shopping centres and libraries. It is also available, free of charge,

from the Office of Fair Trading, PO Box 366, Hayes UB3 1XB or

telephone 0870 6060321.

Click hereto download the leaflet.

2. The OFT referred the market for the supply of extended warranties

on domestic electrical goods to the Competition Commission following

a study by the markets and policy initiatives division of the OFT.

The study, publishedon 2 July 2002, found that competition in the market did not appear to be working effectively and that consumers were not adequately informed or protected.

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