FOOL'S EYE VIEW
To Buy Or Not To Buy - That Is The Question?

By David Kuo (TMFDragon)
November 29, 2001

Carburton Street, London -- Some things are just ideal for renting. For example rotavators and tillers are great if you want to take the hard work out of gardening chores. For those who might get the occasional invitation to a black tie affair, then maybe it is better to hire that ball gown or tuxedo rather than splash out on an outfit that will only be worn once. And almost certainly hiring fancy dress, for those more unusual parties, is a much better idea - unless, of course, you have some hidden desire to keep that French maid's outfit tucked away in your wardrobe.

The common denominator in the all of the above examples is the frequency that those items will be used. But when the gear or equipment is going to be used regularly, then it might pay to consider buying the item outright rather than constantly forking out rental charges. You could find that you have paid for that tuxedo twice over by splashing out the odd fifty pounds here or sixty pounds there.

This then begs the question as to why the market for the rental of home technology is such big business in the UK. A quick scan of the Yellow Pages will soon reveal the vast number of television rental companies in operation across the British Isles. The biggest player, and almost certainly leader of the pack, is boxclever, which was formed from the merger of Granada Home Technology and Radio Rentals. The media and commercial television broadcaster Granada (LSE: GAA) still has a 50% stake in boxclever.

According to boxclever, they have 7% of the total market for televisions and 2.3 million customers rent approximately 4 million units from its 400 shops across the UK. The figures feel a tad high because that would imply over 32 million people are renting 57m units in total. That seems a tad over the top but it probably accounts for corporate leasing to hotels and might perhaps include other television-related products like DVDs also. But nevertheless, even if the numbers were halved, it would suggest over 15m people believe that renting some kind of home technology is a good idea.

So let's take a quick gander at the money numbers and see if it makes any sense. The latest all-singing-all-dancing wide screen digital television set will cost £30 a month to rent. It has all the latest gizmos and gadgets that include split screen text and pictures, and of course the obligatory front-located audio video sockets. And who would want a television without those twin scart connectors? What's more it will only set you back £30 a month. It's a bargain - yeah?

Well to buy the goggle box outright would set the customer back £730. As a general rule of thumb, television sets should last a minimum of five years if you treat them with respect. That translates to a monthly cost of only £12.50, a lot less than the £30 that you would have to pay for renting the machine. But of course you will lose out on the interest that you would earn on the £730, which is another £130 over the five years. Even still, it works out at just over £14 a month.

The numbers are quite compelling. A customer who prefers to rent rather than buy has effectively paid for the television more than twice over the expected lifetime of the machine. Or put another way, the customer could almost afford to upgrade the television set every two years if the straight purchase option was chosen. So why do so many people still choose to rent rather than buy?

Consumers, especially those who are buying big-ticket items, tend to be driven by affordability. They can be under the illusion that monthly payments are the sole criterion for deciding whether they can afford to go for a deal or not. The truth is that it is seldom better to rent rather than buy. And deciding whether to sign on the dotted line simply on the basis of whether you can afford the monthly payments, and without considering the total amount you are signing up for, is never a good idea.

If you have money salted away then it is always better to dip into your savings. But if you feel more secure by having the money where you can still get at it easily, then an offset bank account could be a good alternative. With these types of accounts interest on loans can be offset against interest earned on savings. You could find that you end up paying no interest at all on your loan by forfeiting the interest you could earn on your savings.