When does renting beat buying?
From video games to automobiles, consider these factors before you make a purchase.
If experiences appreciate and things depreciate, is there a way for us to separate the experience of a thing from the thing itself? Of course there is -- rent it.
If we’re going on vacation, it makes perfect sense for us to rent a car rather than buy it (though in places in Europe, for long “rental periods,” you actually buy the car and sell it back) and we don’t think anything of it. So why don’t we do it for things we use only infrequently? We don’t realize it’s an option.
Whenever you consider the financial trade-offs between buying something and renting something, it really comes down to a few factors. Here’s what I think they are.
How much of a premium are you paying just for the right to rent rather than buy? This is best illustrated by a car lease. The typical car lease requires you to put down a significant down payment because you’re “paying” for the immediate depreciation of the car. That’s a significant premium over buying because, in theory, you can divide that cost over the life of the car. That’s one reason why leasing a car is a bad idea absent compelling reasons to do so.
How long will the product last beyond your regularly scheduled payments? The true value in owning a car comes in after year five, or when the car note is paid off, and you can drive the car into oblivion. That “drive the car into oblivion” period is where buying is better than leasing because you’re getting the car for “free,” excluding gas and maintenance. With a lease, you are required to enter a new lease or begin a new set of payments if you buy the car directly from the company.
How often will you use the item? Your usage behavior will dictate how much it costs per use (the same idea as maximizing your entertainment dollar). If you live in a city and use a lot of mass transit, it makes no sense to lease or buy a car. If you drive every day, then you’ll want to consider buying or leasing a car.
With a car, it sounds pretty easy, right? It has been analyzed to death because it’s such a major purchase. You know where it hasn’t been analyzed to death? Almost everything else. This is especially true for entertainment media like books, magazines, movies, video games, etc. I would argue that in almost all cases, you’re far better off renting or borrowing something instead of buying it. Let’s take each item and make a case for renting.
Video games. Video games cost about $60 a pop for the new systems like the Xbox 360 or the PlayStation 3. For $15.95 a month (plus tax), you can rent one game a month (sort of like Netflix, but for games). That means each month you’re paying a quarter of a game’s value to rent it. At first that sounds ridiculous, because after four months you won’t actually own that game. But think about how many games you play for more than four months. I don’t mean play every once in awhile; I mean hard-core play all the time. There probably aren’t that many games. How many games are in the dead-pool part of your library? Probably a lot. How many of those did you play for at least four months straight?
Movies. Just look at all the DVDs you own. How many do you watch? (Oh, by the way, they’re obsolete. Time for Blu-ray.) This is why Netflix is popular. Enough said.
- Bing: Most-rented movies
Books. We are fortunate enough to live next door to a library so we hardly ever buy books, but books are another entertainment media you don’t ever really need to buy. How many books do you read once and then never again? I would argue you should get your books from the library, but if you aren’t near one and want an online book-rental alternative, Bookswim seems pretty slick but it's pricey. The base plan is $19.95 for three books out at a time (about the price of three paperback books). If you’re a voracious reader, that might be a good option if a library is ridiculously far away. Otherwise, hit the library and “rent” your books.
Clothing and accessories. With the popularity of Netflix, plenty of other “things” are available for rent by mail, such as handbags (Bag Borrow Steal) and fashionable clothes (Rent The Runway). If it makes sense for tuxedos, why not for women’s clothing and accessories? I’ve always wondered why they don’t rent bridesmaid’s dresses as often as they do tuxedos.
Think about some of the things you buy and use infrequently, and see if there’s a way for you to rent it. Is there something else you can rent, rather than buy, that I missed? I’d love to expand this list.
Related reading at Bargaineering:
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
A Fidelity study found that adult kids and their folks aren't on the same page when it comes to discussing finances.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'