Last week, we release a press regarding a company called Warrantech and the confusion many consumers had regarding the extended warranties and service contracts the company offered.  While researching this company, I too had to dig deeper to find out the differnce between the 2 so I wanted to take this opportunity to share that knowledge with the rest of the viewing community.

First of all, retailers love these things because they increase their profit margins quite a bit.  If the profit margin on an expensive electronic item is only a few percentage points, adding on a service contract or extended warranty can up that number in a big way.  Consumers purchase about $1.6 billion in these things every year so the demand to protect valuable items has definitely not diminished even with the economy in the state it is in.

Salespeople will often use the terms "service contract" and "exteneded warranty" interchangeably, but the distinction lies in the fact that an extended warranty will protect against manufacturing defects for a longer time period while a service contract will provide a degree of upkeep depending on what is written on the contract.  Here's an example:  If your computer freezes up, an extended warranty will offer you protection while a service contract might help you out if you accidentally spill coffee all over your keyboard.

As with any decision to purchase a valuable item, the extended warranty or service contract should not be rushed into.  Read the fine print and know what coverage you're getting before you sign off.  You can always shop around as well because there are third party companies outside the one the retailer recommends and using bbb.org can put you in touch with one who you can trust.