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Renting often gets a bum rap.
Renting a home is certainly preferable to buying if you plan to move within a couple of years. And renting a car occasionally can make more sense than owning one if you live in an urban area with good public transportation.
But at other times, renting is a big financial trap. Seemingly low payments disguise the fact you're shelling out more and getting less than if you'd bought outright.
How to know the difference? Here are five situations where renting is a terrible idea, along with five where it's the right one:
Rims. You can blame it on MTV's "Pimp My Ride" or simply a car culture gone crazy, but flashy chrome wheels are big. They're also expensive, typically costing $1,000 and up for a set. So a bunch of "rent to own" stores hawking rims and tires have sprung up to cater to those with expensive tastes and bad credit.
For example: At Rent A Wheel in Van Nuys, Calif., you can pay the cash price of $1,612 for a set of VCT Grissini wheels, or you can pay $62 a week for a year -- and pay for them exactly twice ($62 times 52 weeks is $3,224). But hey, there's no credit check involved -- or common sense, apparently.
Honestly, if you fall for this scheme, you deserve to stay broke. If you really must have the baddest wheels, you can save up for them in six months (or less, since you're likely to find a better deal if you shop around).
Furniture. Speaking of broke, you'll get there even faster and stay there longer if you decide to "upgrade" to rent-to-own furniture.
At Rent-A-Center in North Hollywood, Calif., you can rent an overstuffed Klaussner couch, love seat and coffee table for $44.99 a week for 83 weeks, which works out to about $2,000 more than the $1,657 the set would cost if you paid cash.
On a recent day on Craigslist's Los Angeles board, there were 1,453 listings selling couches, 2,269 listings for sofas and 542 listings for love seats. Plenty were gently used and selling for $100 or less, sometimes a lot less. If you wanted the same brand, there was a listing for a Klaussner couch for $200.
Another Rent-A-Center, this one back in Van Nuys, had perhaps the saddest offering I've seen: a used bunk bed set for $22.96 a week for 65 weeks, or nearly $1,500, compared with a cash price of $663. Of course, Craigslist is littered with ads for used bunk beds for a fraction of that.
You can even buy a set new for far less. Ikea sells a bunk bed set for just $149. Mattresses start at $69. You could save up for it by putting aside $23 a week and get what you need in a little more than three months.
Computers. If you own a small business, leasing computers can make sense. You preserve precious capital, are able to upgrade more frequently and often get tech support from the leasing company.
When you're a consumer, though, renting is usually a terrible idea, especially if you're renting to own. Because there's usually no credit check, you get the worst possible terms on an overpriced computer. At the Van Nuys Rent-A-Center, a middling Dell computer rents for $39.99 a week for 62 weeks, or a total of $2,479. (The cash price is $1,100.)
Your alternatives? Head back to Craigslist. Check with friends who are upgrading to see whether you can buy their old units. Or check out eMachines, which specializes in low-cost computers. A brand-new desktop with monitor costs as little as $480. You could save $40 a week for 12 weeks and own it outright. (Here are the low-cost favorites of the editors of PC World, all under $750.)
Televisions. You can find a 50-inch Toshiba TV for around $1,200, sometimes less. At the Van Nuys Rent-A-Center, the cash price is $1,800. Or you can pay $34.99 a week for 116 weeks, or more than $4,000, for the beast.
There is no excuse for this, people. Go without, get a $25 set from your local Goodwill or take the 27-inch reject your idiot neighbor puts out on the curb when he gets his rental monster.
Your paycheck. If you fall into the clutches of a payday lender, your paycheck is no longer your own. These places work by lending you cash for a fee. The fee may not seem like much -- $45 to cash a $300 check -- but it works out to annual interest rates of over 400%. (Read "Loans with triple-digit interest" if you need more details.)
If you can't pay back the loan when payday comes around, another fee is added. Fall into this trap, and it's hard -- sometimes impossible -- to climb back out again.
Borderline cases
The five no-rents are pretty black and white. I found two more that have some shades of gray:Tuxedos. If the only two times you'll ever rent a tux are your prom and your wedding -- and those events are separated by more than a few years -- then renting makes sense. If you're a male urban professional who gets invited to black-tie events, though, you need to buy your own penguin suit. You won't pay that much more to purchase a decent tuxedo than you would to rent one a couple of times, and it will fit you a heck of a lot better.
Turns out it's not -- not quite. The point isn't to own (and overpay for) the purses, although these outfits will certainly sell them to you if you want. The point really is to rent a piece of fashion and turn it back in so you can rent another one. You might pay $50 a month to rent a bag that retails for $500, then exchange it in a couple of months for something new(er).
That certainly makes more sense than paying hundreds or thousands of dollars for a handbag and then just tossing it in the closet when the fashion inevitably changes. If you're a fashionista and your finances are otherwise in good shape (on track for retirement, no credit card debt), then maybe I can see it.
I still think most people are better off not trying to ape a lifestyle they can't afford. And don't get me started on Birkin bags. Renting them for $4,800 a month is no less obscene than buying them at $48,000.
When to rent
Now we come to the final section, the five things you should always rent. They include:Pickup trucks. If you're a cowboy or work in construction, you get a pass. But everybody else should think hard about how much they actually use that bed to haul stuff. (When you're young, it's particularly dangerous to own a truck, because your friends will be moving a lot -- and everybody will want you to help.)
If you really only need a pickup a few times a year, rent one and buy a car that gets decent gas mileage instead.
Vacation homes. You visit a beautiful place, you're enchanted, and the next thing you know you're dreaming about owning a little cottage tucked in the woods or by the lake or near the beach. Snap out of it, honey. Owning two homes is more than twice the hassle of owning one. The second home will have to be maintained, repaired and insured just like your first, but it will be empty for long periods, so things can go terribly wrong when no one will notice (bursting pipes, rat infestations, termite damage, etc.).
And if it's not sitting empty, it's being (ab)used by strangers or by freeloading friends. Most likely, you'll start feeling obligated to spend time there so you feel like you're getting your money's worth, even when you or your family would rather be somewhere else. Let other people deal with the hassle and rent their vacation homes.
Anything you use once a year or less. Floor buffer? Lawn aerator? Power washer? Really expensive power tools? If you drag it out annually or less, it's usually better to rent. If you'll use a tool or appliance more often than that, but still infrequently, think about sharing or swapping with a neighbor. You could buy a carpet steamer together, or you could get the steamer and she could get the sewing machine you'll use once or twice a year.
DVDs. Yes, I know they're cheap, but how often are you really going to watch the same movie? If you've got kids and it's a Disney flick, the math works, but otherwise, sign up for Netflix, dude.
The next car you plan to buy. This won't always work, because the nation's rental agencies don't stock every conceivable car. But there's no better way to get the feel for a vehicle than to drive it around for a few days without a salesman yapping in your ear.
So, what are the things you never or always rent? Share your thoughts on the Your Money message board.
Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
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