Warranties: What are they and how do they work?

We hear about warranties every time we make a major purchase. Advertisers boast about the quality of their warranties. Retailers try to up-sell consumers on “extended warranties,” “protection plans,” and “service contracts.” But what do warranties really offer consumers? Are extended warranties and service contracts worth the extra money? Some warranties are less valuable than you might expect because consumers already have many rights under the law by default. Consumer finance experts usually advise against paying extra for extended warranties.

Quick Guide: What is a warranty? | How do warranties work? | Types of warranties | Why are warranties important?

What is a Warranty?

A warranty is a promise that certain conditions in a contract will be met. Warranties often accompany the sale of goods, including cars or appliances.

Warranty vs. Guarantee

In most situations, these words are the same. They both describe a promise. “Guarantee” can also be used as a verb. For example, a seller might say, “I guarantee this product will work for at least 12 months.” Whether a seller describes their promise as a guarantee or a warranty, they have created a warranty.

In lending, a guarantee (sometimes spelled “guaranty”) takes on a special meaning. In that context, a guarantee is a promise to take on debt if the primary borrower fails to make payments.

Warranty vs. Representation

These terms often appear together in contracts with a “Representations and Warranties” section. A common example is a contract for the sale of a business. A seller of a business “represents” or “warrants” that certain statements about their business are true. The difference between these two types of statements often comes down to the rights of the other party if a statement turns out to be false. In court, a claim of “misrepresentation” may lead to a different outcome than a claim for “breach of warranty.” However, some courts disregard this distinction. This has led some people to comment that the phrase “representations and warranties” is confusing and should be revised.

How do Warranties work?

Sellers of high-value items usually provide a written warranty. There are some guidelines that they must follow when designing these warranties. However, businesses have a lot of discretion to decide what goes into their written warranties. If you are making a major purchase and concerned about the warranty, make sure to review a written copy before buying.

What can you do if a Warranty is not honored?

If you have read a warranty carefully and followed the instructions to make a claim, but are refused help, you still have options.

Attempt to escalate the problem within the company itself. If a store or dealership refuses to honor a warranty, try contacting the company’s corporate headquarters. Make sure to identify the correct company. Warranties are often provided by a product’s manufacturer instead of the store that sold it.
Document your attempts to contact the company. Send emails and letters requesting that your warranty be honored. Be clear and direct about how the company has failed to live up to its promises. Be sure to keep copies of your correspondence.
Consider suing. Most consumer warranty claims are small claims and you can file them yourself. There are many free resources available online to help with this. If the amount in question is large, consider hiring a lawyer to assist you. If the company is large enough, the lawsuit may become a class-action lawsuit. This happened to Apple in 2013.Finally, you may consider making a complaint to the Federal Trade Commission. This federal agency is in charge of preventing unfair business practices.

Types of Warranties

Implied Warranties

Even if a seller does not provide a written warranty, three major warranties are “implied.” These warranties are available to consumers by default. The three types of implied warranties are

Warranty of Merchantability. This means that when you buy a product, it should work as an ordinary buyer would expect. For example, if you buy a dishwasher, you expect it to wash dishes (without breaking down or causing water damage). Any seller of a dishwasher is implying their product will work.
Warranty of Title. This means that anyone selling a product is implying that they have the right to sell it. They are warranting that they are not selling someone else’s property without permission.
Warranty of Fitness for a Particular Purpose. This warranty is triggered if a buyer tells a seller that they want a product for a certain purpose. For example, say a buyer mentions that they need shoes fit for hiking outdoors. A shoe store recommends a certain brand of shoe, which the buyer buys. The shoe store has implied that the shoes are fit for use as outdoor hiking gear.

These warranties are implied unless “disclaimed” by the seller. In most states, advertising something for sale “as-is” is enough to disclaim implied warranties. Other states, like Massachusetts, make it difficult to disclaim implied warranties.

In some cases, implied warranties may give consumers more rights than written warranties. If you have a problem with a product that is not covered by the written warranty, the problem may still be covered under an implied warranty.

Express Warranties

Express warranties are the opposite of implied warranties. This term describes the promises a seller voluntarily makes about their product. Express warranties can be written or oral.

Limited Warranties vs. Full Warranties

The terms “limited warranties” and “full warranties” are defined by federal law. Limited warranties offer less protection than full warranties. One reason that a warranty might be “limited” is that it requires the buyer to pay postage or other fees to get their item repaired. Another reason could be that the warranty ends if the item is sold or given away to another owner.

Extended Warranties

Extended warranties are optional add-ons offered alongside a product for an additional cost. For example, extended warranties for cars provide maintenance work for an extended period. Since extended warranties involve an extra payment for an extra service, federal law considers them separate contracts. They are not “warranties” included in the original contract.

Why are Warranties important?

Sellers of high-dollar value items want to make clear what they will cover in case something there is a problem with their product. This avoids costly lawsuits when something goes wrong. Generous warranties also make buyers more comfortable making large purchases. This can lead to increased sales.