This article from the LA Times was sent in by a reader (thanks!) and I found it pretty interesting, not only as an economist, but as a new car owner who recently had to have my tires replaced.
The article discusses how some motorists are deciding to rent-to-own tires for their vehicle because of high costs. However, the costs ends up being much more than had the tires been bought outright. In one example from the article, one customer ended up paying $2,953 ($164 for 18 months) for tires that would otherwise have cost her $1,340. This works out to over 120% annual interest which is quadruple some of the highest credit card rates.
But the main point the article mentions over and over again is that these consumers didn’t realize until it was too late how terrible this “good deal” really was. I realize some people are in difficult financial situations and may be trying to save money however possible, but that’s no reason to jump blindly into a large decision involving money. It took me less than a minute to search for a time value of money calculator and plug in the numbers to see that perhaps an alternative deal should be looked for.
What I’d really like to get across to anyone out there reading this is to ALWAYS do your research. That’s part of what being a Rational Reactor is. :)