Hello, Readers.
[This is another post that I started during the early part of my healing process, but have only now been able to complete. I originally began this post on 10.30.11, in the hopes I could completely write it up in short bursts within a few hours' time. Things didn't go according to plan, but I didn't give up. While I am on a roll, I'm posting this one now, tonight (on 11.19.11).]
Today, I want to demystify the 'pro-rated warranties' that apply to certain parts (think automotive tires and batteries). Have you ever wondered what that was all about, exactly how it worked? Let me shed some light on that subject for you.
We have already discussed that warranties exist for some items - both inside and outside the automotive industry. The next trick to the warranty process, is knowing what kind of warranty there is. Certain items - I will discuss tires and batteries as the examples here - involve a 'pro-rated' warranty. [As a side note to any Dave Ramsey/FPU fans: yes, this is along similar lines as the 'pro-rata' payment division used in the bankruptcy court repayment calculations.]
Just so you know, 'pro-rata' (the root term for 'pro-rated') is one of those Latin-based phrases, and it translates 'per-share' or 'proportionately'. When a warranty is said to be 'pro-rated', basically it means that the credit you receive is reduced 'proportionately' for the amount of use you did get out of it. If you return an item under warranty purposes - and wish to receive a refund in lieu of a replacement item - the receipt will show the item's full value as a refund, followed by a 'charge-back' for a certain amount (per month, per mile, etc) multiplied by the number of (months, miles, etc) you used it. The difference between the two is what your net refund would be.
Let's say you'd rather have a replacement item. You do still need a properly working (fill-in-the-blank-part) after all! In that case, the receipt would show the item's full value as a refund (for the return), followed by the item's full value as a charge (for the new sale), then finally the 'charge-back' outlined in the above scenario. The first two line items cancel each other out for a 'net-zero' invoice; the 'charge-back' is the part where you pay for the use you did get.
Is this still a tad confusing? Let's see if giving a few examples help us out.
Example 1:
You buy a set of 4 tires with a 65,000 mile warranty at Acme Tire Company. They cost you $150 per tire, plus taxes and fees (road hazard protection, old tire disposal, etc.). For some reason - and not from doing burn-outs or other such abuse - one or two (or more) of your tires fail after 15,000 miles of use. So, when you return to get the defective tire(s) replaced, Acme will put the new one(s) on for you. When you get checked out, you will be charged $34.62 per tire (plus tax, and any potential fees). Here's the math: 15,000/65,000 = 23.08% usage before failure. $150 * 0.2308 = $34.62. [Unless something changes in the near future, tire warranties have no free replacement period at all.]
Example 2:
You need a battery for your vehicle, but do not intend to keep it for more than another year. Of the options presented, you choose to purchase the battery that has a 60 month pro-rated/12 month free replacement warranty. Life happens, and you wind up still driving the thing 25 months later when the battery goes out again. When you get it replaced, you will pay for 25 months of use before failure; this will be charged at a flat monthly rate, not as a percentage of months used. You replace it with an identical battery, so that is all you owe (besides tax and any fees).
NOTE: Pro-rated battery warranties generally lose the last of their credit value somewhere between 1/2 and 2/3 of lifetime use. So, in the above example, you would start paying full price for a replacement battery somewhere between the 30th and 40th month of use.
Example 3:
Same situation as Example 2. Only this time, you decide that you deserve to upgrade to a battery with a longer warranty (and some more power, as well). The invoice you receive will show: 1. the sale (charge) of the better battery at full price; 2. the return (credit) for the full price of the defective, shorter-warranty battery; 3. the charge of 25-times the monthly usage rate for the period of good use you did receive. The net balance after all this is done is what you owe to get the upgraded battery. It may seem like you are paying a lot of money, but compare the bill to the original full-price of the better battery with tax, etc. You will see how much of a discount you truly did receive.
I certainly hope this article and the examples I have cleared up this foggy matter for you. If you wind up facing a pro-rated warranty situation not covered here, please contact me. It will be my pleasure to walk through it with you and make sure what is going on makes sense.
Until next time, remember to be an informed consumer.
PPM
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