Many big-ticket items are sold with a guarantee and/or a warranty, so that the customer can get the item repaired or replaced at no extra charge if it turns out to be defective in some way. Vehicles are also commonly sold with a product warranty to cover certain maintenance and other costs for a specified period.

But what’s the difference between a warranty and a guarantee? How do they relate to the rights of the buyer and the responsibilities of the seller?

Warranties and guarantees: Key differentiators

Both a warranty and a guarantee are promises to customers. Both are ways for the manufacturer or seller to reassure buyers that if a product or service does not work as it should, they’ll offer a refund, replacement or repair.

• A warranty is a formal, written, contractual guarantee that undertakes to repair or replace a product that develops a fault or defect during normal use. Warranties are usually more legally binding because they are contractual. A warranty is valid for a specified period only.
  
  
• A guarantee is a less formal – sometimes even verbal – promise that the product will perform as intended and can be returned for a refund if it doesn’t.

Most products come with some form of guarantee that it will perform as expected, but warranties are often an additional feature that comes with an additional cost. They act as a kind of insurance policy that compel manufacturers to repair or replace faulty goods, depending on the stipulations of the warranty.

The differences are quite clear when you consider motor vehicles. It’s impossible to offer a guarantee on a used car, because a car has too many parts that are subject to normal wear and tear for this to be reasonable. A warranty on a used car, on the other hand, acts more like an additional insurance policy – specific parts of the car can be insured under warranty at a set cost.

Guarantees vs warranties: Know your legal rights

Guarantees

• Are commitments by manufacturers or retailers.
• Apply to products and services.
• May or may not be a condition of sale.
• Can be verbal or written.
• Come at no extra cost.
• Have no term of validity.
• Entitle you to money back in case of default.

Warranties

• Are applicable only to products.
• Are a condition of sale.
• Are usually in written form.
• Sometimes come at a cost to the buyer.
• Apply for a specified length of time.
• Do not offer money back in the event of default.  

Warranties provide better legal cover for claims on defective products but be aware of the conditions that may come with them. As with any insurance policy, extended warranties will often have restrictions. A warranty on a vehicle, for example, might stipulate that repairs are made with authorised replacement parts by selected service providers.  

Small businesses can offer client warranties and guarantees

If you’re a small-business owner looking to offer your customers warranties or guarantees, here are some options:

• A full refund, minus shipping costs (when applicable).
• Free replacement of defective products.
• A price guarantee that offers to refund the difference if a customer finds the same product at a lower price elsewhere.

Offering guarantees as a small business improves your credibility and reliability as a service provider, which can help you compete against larger retailers. In some cases, for example if you have an online business that ships goods to customers, there may be a legal requirement to offer certain guarantees on replacement or return of goods. Make sure you are aware of whatever these legal obligations might be when setting up your business.