Lazy Man and Money

Rent-A-Center’s Crazy Commercial Promoting Fiscally Responsibility Fails

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I was watching television the other day and this commercial from Rent-a-Center caught my attention. Go watch the commercial, I’ll wait. Back? Good.

The commercial didn’t catch my attention because the guy wants to buy a 60″ television and his wife is questioning it (I swear). It caught the attention because Rent-A-Center is suggesting that it is a good alternative for those with too many credit card bills that they can’t pay off. How nice of Rent-a-Center to promote fiscal responsibility, right? Well maybe not.

Rent-A-Center’s alternative is to rent you the television at $30 a week. Quick math in my head (more than 50 weeks * $30) shows that it would cost more than $1500 a year. And you can buy this LG 60-Inch Plasma at Amazon for $999 including free shipping. In just 34 weeks, or less than 8 months, you would have owned the TV and been free of any payments.

Rent-A-Center does have a rent-to-own policy. At least the payments won’t continue forever. If you watch the commercial again there’s some very small text at the bottom of the screen explaining the terms. It says that you’ll own the television after 104 weeks for a total costs of $3,118.96. It also says that the MSRP of the television is $1429.

So you can avoiding putting more debt on the credit card by buying a $999 television for more than $3000. How does that compare to credit cards? I found this excellent credit card calculator from Ready For Zero. I put in $1000 in and it showed that at an average interest rate of 15%, you’d pay it off in 8 years and 9 months, paying a total of $717 in interest. Better to pay $717 in interest on a credit card than $2100 at Rent-A-Center, right?

I’ve always known that Rent-A-Center is a ripoff, but I had no idea the magnitude of the rip-off. It is sickening that they’d try to trick consumers to avoid credit card debt for an even worse one. Once I started to realize how bad Rent-A-Center’s rates were I started to find more articles writing about regulation about their business practices.

Consumer Reports also notes that a high interest credit card is much better than Rent-A-Center. They have much better advice, “Avoid rent-to-own, even if it means postponing purchases until you can better afford them.”

Also keep in mind that despite what the guy in the video says you don’t “really need” a 60″ flat screen TV, especially if you have credit card bills that you can’t pay off. I showed the commercial to my wife and she said, “That commercial is wrong on so many levels.” I couldn’t agree more.

Credit Karma’s Credit Simulator (and Other Credit Tools)

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Last April, I went to Finovate Startup in San Francisco. I was introduced to around 40 companies at the time, and I met a number of their founders personally. One of them was Credit Karma. You may remember that in the past, I told you how you can get, free credit scores from them. It’s important to realize that a credit score is different from a credit report (which are typically free, one per year, from AnnualCreditReport.com.

I got a little off-track with the credit score explanation.  I meant to report that Credit Karma won Best in Show at Finovate this year. What did they do to earn those honors? I’ll let you know, but first I wanted to mention a couple of other things that I noticed they were up to:

  • Recommended Credit Cards – They have a section of credit cards that is different than your usual credit card page. These credit cards seem personalized. Since they know my credit is excellent, they show me the cards in the excellent rating. They even have ratings based on what other Credit Karma vote, the approval rate of applications, and what Credit Karma users are actually signing up for.
  • Improved Credit Karma Blog – As a blogger, I tend to notice blogs – even corporate ones. This one has a lot of information about improving your credit as well as some timely credit news. My favorite is what is a good credit score. That’s exactly what you’d expect from a credit-focused company trying to transition from start-up to market leader.
  • Credit Simulator – This is the tool that carried Credit Karma to Finovate’s Best in Show award. Let’s pretend you signed up for Credit Karma when I reviewed them last time. Credit Karma gave you a score of 680. It’s not great, but you know you could do better. If you only knew what you could do to help it out. Enter the Credit Simulator. This tool allows you to see how your credit would change in a number of scenarios. Some of them include, adding a new loan, adding a credit inquiry, closing your oldest credit card, allow a monthly account become 30 days overdue, etc. This tool finally gives you some insight to how your credit score is affected. Granted, it’s not a FICO score, it’s a reason estimation.

Here’s one feature to look for in the future. My Credit Karma score dropped, and I didn’t know why. I figured that since Credit Karma is constructing my score from my report, they could tell me what I did to deserve the drop. Unfortunately, they couldn’t tell me what had changed in my account. After talking with the CEO, I have confidence this may be something you’d see in the future from Credit Karma.

Chrysler’s $2.99 Gas Promotion

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Chrysler is touting a new promotion that promises to make $2.99 gas available to Americans who buy a new car from them. The timing couldn’t be better. With gas averaging over $4.00 in my area of San Francisco, I can personally say that I’ve witnessed some concerned people. So is Chrysler’s promotion a good deal?

Chrysler’s 2.99 Gas Offer in Detail

Chrysler is offering a gas credit card. Use the card where you buy gas and your statement will reflect the $2.99 rate (Chrysler pays the difference so the gas station still gets their money). The offer is only for the first 12,000 miles a year for three years. It excludes some vehicles like gas guzzler Dodge Viper, the popular Chrysler Crossfire, and some others. If your gas requires premium, the $2.99 cap becomes $3.29.

Math of Chrysler’s Offer: Two Examples

  • Great case – Let’s try to make a compelling case for this offer. Assume that you live in San Francisco and pay an average of $4.25 gas over the next three years. While gas could always jump to $6.00 a gallon, I think this may be realistic given how much it’s already jumped. Let’s assume that you get 20 miles per gallon in the car that you choose to buy. This is low for many of the models, but I’m being conservative. Let’s assume that you drive the full 12,000 miles each of the three years. Given this scenario you’ll use 600 gallons of gas a year or 1800 gallons. Saving $1.26 a gallon leads to $2,268 in savings
  • Average case – BusinessWeek offers a good average case example. It assumes you drive a more average car, use all the gas, and that gas prices stay at the national average, $3.61. It’s not exactly an average case as you aren’t likely to use the full benefit and gas prices aren’t likely to stay at today’s national average for three years. Those two may cancel each other out. BusinessWeek’s scenario says that it will save you $858 over the three years.

Buy or Don’t Buy

I imagine very few people will be able to take advantage of the best case scenario. There’s also the risk that if gas prices somehow drop, the benefit goes down greatly. On the other hand, what if this Goldman Sachs analyst’s $200 oil prediction is right? In that scenario, Chrysler may regret it’s offer. I think too many factors have to fall into place for this to pay off. I’d rather negotiate for cash savings at the time of the car’s purchase than take this gamble. However, if this does sound enticing to you, maybe you should also look at Suzuki’s free summer of gas promotion.

Two Better Plans

If you are really worried about gas prices, I would suggest buying a depreciated used car. Saving $2,000 when you are spending $30,000 is not something to celebrate too much. Buying a $30,000 car a couple of years old is still a better deal in my mind. If it has depreciated 30%, you’ll have saved around $10,000.

Five months ago, Generation X Finance told you how to make money with high gas prices. If you read the article and bought Powershares DB Oil Fund (DBO), you’ll notice that your investment has grown about 30%. If you invested $10,000, you’ll have $3,000 in gains – which buys a lot of gas. In my opinion, this is the best way to guarantee yourself low gas prices.

I would suggest that your best plan is combine these two ideas. Buy a used car and use the money you save to invest in oil and other gas related stocks. Oil may seem expensive now, but 10 years from now, we’ll look back at the good old days when we only paid $4.00 a gallon for gas.