Warranty Definition, How It Works, Types, and Example

What Is a Warranty?

A warranty is a guarantee or promise made by a manufacturer or similar party regarding the condition of their product. A warranty also refers to the terms and situations in which repairs, refunds, or exchanges will be made if the product does not function as originally described or intended. Warranties offer consumers some assurance that the goods and services they purchase are as advertised.

How Warranties Work

As noted above, warranties are promises made by manufacturers or retailers about their products and services. These promises can be either explicit or implied. Warranties provide a guarantee about the condition of goods and services purchased, providing an assurance that they are as advertised. They are generally only good for a specified period. When that period ends, the issuing entity is no longer obligated to repair or replace a product previously covered.

Warranties usually have exceptions that limit the conditions in which a manufacturer is obligated to rectify a problem. For example, many warranties for common household items only cover the product for up to one year from the date of purchase. Generally, they are covered only if the product has problems due to defective parts or workmanship.

As a result of these limited manufacturer warranties, many vendors offer extended warranties. Extended warranties are essentially insurance policies for products that consumers pay for upfront. Coverage will usually last for several years above and beyond the manufacturer's warranty and is often more lenient in terms of limited terms and conditions.

Home warranties can provide discounted repair and replacement services for household appliances and systems, and the best home warranties offer a range of plans depending on the coverage you want.

Special Considerations

The U.S. Congress passed the Magnuson-Moss Warranty Act of 1975 to set standards and rules for consumer product warranties to protect consumers from fraud and misrepresentations.

The act stipulates that the terms and conditions of warranties must be fully and clearly disclosed to the buyer before purchase, including whether it is a full or limited warranty. It also prohibits deceptive practices, such as the inclusion of misleading or false terms or requiring the buyer to purchase another product to validate the warranty.

In addition to what the manufacturer guarantees in an express warranty, the Uniform Commercial Code (UCC) provides additional consumer protection by providing the implied warranty of merchantability. This warranty guarantees remedy if the product fails to perform as designed.

Types of Warranties

There are two general types of warranties, expressed and implied. Each category has different sub-types of warranties, with terms, conditions, and guarantees.

Express Warranty

As its name suggests, an express warranty is an expressed guarantee from a seller or manufacturer to a buyer that the purchased product performs according to certain specifications. If defects are present, the seller agrees to repair or replace the defective product. The warranty can be expressed in writing or verbally in advertising, on the product, or through other means.

All expressed guarantees are not warranties. For example, if a retailer claims that its mattresses will give you the "best night's sleep ever," they are not issuing a guarantee that it will deliver upon that statement. It is considered puffery, which is a form of exaggerated language used to advertise a product and attract customers. It can be reasonably assumed that this claim is based only on the opinion of the person making the statement in an attempt to promote the product.

Implied Warranty

An implied warranty, which is also called an implied warranty of merchantability, is a guarantee that the purchased product functions in the manner designed. It need not be expressed to be valid. This guarantee is implied unless it is explicitly excluded—typical of "as is" sales.

Implied warranties also apply when sellers present and sell a product fit to fulfill a specific purpose. The buyer relies on the seller's expertise to purchase the product. Any statements made by the seller regarding the product can be considered assurances.

Warranty Sub-Types

There are many different warranty subtypes, but the most common are extended warranties and special warranty deeds.

• Extended warranties are available on products of substantial value, such as cars, electronics, and appliances. Although sold by the retailer, the manufacturer is responsible for executing the extended warranty on behalf of the customer.
• Special warranty deeds transfer property ownership from one person to another and assure the buyer that the title at the time of sale is free of encumbrances, liens, or claims. This deed transfers ownership to the grantee with an expressed warranty about the title.

Denied Warranty Claims

Even though manufacturers and retailers may offer warranties, there are instances where they may not honor these promises. We've outlined a few of these below.

Altered Products

Warranties are meant to guarantee the condition of products and services as they are when they are purchased. This means that they typically only apply to products that have not been altered or modified after they were purchased.

For example, car enthusiasts enjoy changing engines or making other enhancements to a vehicle's drivetrain to coax a particular type of performance. Many modifications can nullify the vehicle's warranty coverage of the modified and affected components because they can affect the vehicle's reliability in ways for which the dealer and manufacturer are not responsible.

Owner Actions

Each company has a unique process for addressing warranties. Even if a product is within the timeframe designated by a warranty, the company may require multiple proof points to show that the product failed in normal use.

If the product failed because of the owner's actions rather than a fault in the design or manufacturing, the warranty is not likely to be honored. For instance, the owner might have placed the product in an extreme environment that was too hot or too cold for its reasonable use.

Warranty vs. Guarantee

The terms warranty and guarantee are often used interchangeably, but there are subtle differences between the two. Both require sellers to act on certain promises they make to consumers about their offerings. However, the difference lies in the level of confidence the manufacturer expresses regarding the product's quality and functionality.

A warranty is a guarantee from a seller that if their product fails to meet certain specifications, a remedy is available. A warranty describes the conditions in which the seller is liable and what conditions are excluded. Although the buyer does not pay a separate cost for the warranty, the warranty price is included in the product's price.

A guarantee, on the other hand, is a promise or assurance from the manufacturer or seller that the product will work as described or meet specific quality standards. If it doesn't, the manufacturer will fix or replace it. Guarantees are of no cost to the buyer and can be offered for both products and services.

Resolving Warranty Disputes

Understandably, it is easy to become confused with the coverage a warranty provides because of the language used in it. However, if you believe a warranty covers an issue, here are some steps you can take:

• Ensure you read the warranty and instructions. If you've damaged an item using it for something it wasn't designed for, most warranties won't cover the damages or issues. Additionally, some warranties may not cover certain issues.
• Contact the seller, then the manufacturer. Sometimes, a seller will provide an additional warranty. You can contact the retailer to see if it covers your issue. If it doesn't, contact the manufacturer.
• Report the manufacturer to the Federal Trade Commission (FTC). If you believe the warranty covers your issue and you're not getting help, you can file a report with the Federal Trade Commission, which will forward it to law enforcement for investigation.
• File a lawsuit. You can always file a lawsuit against the manufacturer, seeking reimbursement for damages. Depending on the item, this option often costs more than replacing the article, and there is no guarantee that you'll win the lawsuit. If you believe this is your only option, contact an attorney and discuss the matter.

Warranty Tips

As a consumer, there are some things you can do to minimize warranty issues:

• Read the warranty before you buy, and purchase additional coverage from the seller if it is offered. Additionally, you'll need the receipt when dealing with a warranty issue, so it helps to keep it with the warranty.
• Keep a copy of the warranty to refer back to if an issue arises.
• Only purchase from companies known for adhering to their warranties and their customer service.
• Use items for intended purposes in accordance with the instructions. Also, if there is a maintenance schedule, ensure you conduct and document any periodic maintenance.
  

The Bottom Line

A warranty is a guarantee from a manufacturer or seller that defective products will be repaired or replaced. The warranty sets forth the terms and conditions to which the warranty applies, as well as exclusions. There are two types—express and implied, with many sub-types in each category designed for specific products and services.

In the U.S., the Magnuson-Moss Warranty Act and the FTC's Uniform Commercial Code provide rules on consumer product warranties. If you experience a problem covered by a warranty, contacting the seller or manufacturer is the first step to resolving the issue. You can contact the FTC or file a lawsuit if they can't or won't fix a matter covered by the warranty.