The Cost of Renting vs. Buying

Is there a correlation of cost to rental price?

Case Study #1: Surfboard

Because my car is too small to carry a longboard, I’m forced to rent one when I go surfing. The going rate in SoCal tends to be $25 to rent a board for the day. Are these nice, shiny boards? Definitely not. We’re talking beat-up, old boards. Even if they were brand new, they’re probably only costing the retailer $250.

In other words, I’m paying 10% (or more) of the item’s cost per day. Actually it’s less than a day, since you have to return the board the same day.

Case Study #2: Rental Car

So I’m well aware the many folks get totally ripped off when renting a car and pay upwards of $50-100 per day. But for everyone else that has half a brain, they are probably paying a lot less (Caddies & Corvettes excluded).

For example, American Express spams (oops, I mean “mails”) offers all the time to me for rental car discounts. I used one for Alamo and ended up paying about $25/day for a decent vehicle. But you don’t need a credit card to get deals like that – those bazillion coupon sites probably have similar offers.

So I ended up paying $25/day for a vehicle that probably costs $15,000 (actually more, but I’m factoring in a generous discount since they got it from a fleet purchase). That works out to paying 0.167% of its cost per day.

Case Study #3: Pancake Griddle

Do I want a friggin’ pancake griddle? Not really. But if I did, it would cost me $85/day to rent according to the website of a local business.

Admittedly, I’m not expert when it comes to these things. Though I did some Googling around and found a number of similar looking contraptions of the same size with a price tag ranging from $1,400 to $5,000. Because the rental looked like a piece of crap, let’s go with the lowest number.

That’s a daily cost of about 6.1%.

Case Study #4: Movie Rental

Hmm… this one is a bit tricky since the price between a rental store vs. Redbox varies so much. So let’s look at both and assume the item cost is $10 for new releases.

Rental Store: $4 per day = 40% of cost
Redbox: $1 per day = 10% of cost

Case Study #5: Bouncy House

The money that parents spend on their kids nowadays… no wonder there are so many spoiled brats!

I got a quote for a 10×10’ bouncy house from a local vendor and the price is $70/day. A quick Google Shopping search yields tons of similar models, ranging from a few hundred to a few thousand dollars. I picked one that looked similar and it’s $1,500.

That works out to 4.67% of the item’s cost per day.

What’s the lesson here?

Well actually I think there are two lessons… one from the consumer perspective, the other from the business side of things.

For Consumers: The correlation appears to be that the lower the cost of the item, the more you are getting ripped off by renting it. So definitely think long and hard before renting something you can easily afford to buy.

For Businesses: If you want to start a rental business, don’t go for the big ticket items. Assuming you can keep the turnover high, you can probably make a boatload more profit by renting inexpensive items like boards, bikes, power tools, etc.

This guest post comes from Mike, the guy behind CreditCardForum. It’s a forum for credit card offers… or just a place to b*tch and moan about your existing credit card