Bits of Cents

I’ve been meaning to blog about something I read in Gary Rivlin’s excellent new book, Broke, USA.

Products that aren’t intended to be used for extended periods of time have frighteningly high costs when used for lengthy periods.  The most commonly criticized examples of this are payday loans, where a $100 loan that costs $15 if paid back in two weeks amounts to an APR of 390%.  That means that if you kept that $100 out for a year at the end of it you would owe $390.

Payday loans are not the only example of this phenomena, however.  How about these examples:

a) a rental car in Boston would cost $25,904 if you rented it for 365 days.  Financing the same car for a year would cost $4,116.

b) a hotel room in New York would $118,022.75 if you stayed there all year.  Renting an equivalent sized apartment would cost you $22,440 ($26,964 if you include weekly housekeeping).

c) a jet ski rental in the Caribbean would set you back $876,000 if you wanted to rent it for the full year.  A new jet ski retails for $7,299.

When the cost of short-term products are annualized, many seem criminal.  Consensus is that the newly minted Consumer Financial Protection Bureau will have short term loans in its crosshairs.  I’m hoping they go after jet ski rentals next.