Saturday, February 25, 2012

Still playing consumers for suckers

So I am having a lazy Saturday watching ESPN, and see an ad where the husband says, "I need the TV," and the wife says, "We can't afford more credit card debt," and the announcer says--"you can have your TV and not take on credit card debt--by renting."

Of course, by renting, consumers are paying an implicit interest rates to RAC, the company peddling the scheme.  The price of renting a Sony 55" television is $29.99 a week.  The cost of a Sony 55" is $1899 on Amazon.  Let's say the expected life of a Sony is four years (it is probably longer).  That is an implicit IRR of 1.51 percent per week, or 117 percent per year.  There used to be a word for this kind of thing, and the word was usury.

This is different from legitimate rental businesses, that rent out equipment for short periods and that have to keep inventory that often sits idle.  But to suggest to consumers that they are better off not using their 24 percent APR credit cards for this scheme--it is disgraceful.




2 comments:

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breddy said...

the good professor seems under the impression that the cost of the tv is the only cost the rental companies has. Of course the rental company has other costs - at least one employee, a phone presumably, and, of course, the cost of advertising on espn. If one were to add the amortized cost of all these other aspects of a rental business, the initial cost of the project would increase dramatically and the irr would fall dramatically.