Consumers exhibit more reckless behavior when deciding to rent something rather than buy it, a new study out of the University of Maryland finds. The lack of commitment required when deciding to rent a product leads people to consider fewer options, gather less information and settle for a less appealing product than they would when buying, according to a release of the study.
The Maryland’s Smith School of Business conducted studies of people’s behaviors while considering renting and buying the same products. Shoppers more often chose to buy when they had the choice of buying and renting, but when an item was presented only with an option to buy or only with an option to rent, more people chose to get the product when it was framed as a rental. The price of renting and buying was the same.
“Completing a purchase can come with a sense of irreversibility that distresses shoppers concerned about the long-term consequences,” Anastasiya Pocheptsova, Professor at Maryland’s Smith School of Business said. “Some shoppers anticipate buyer’s remorse or worry about forgoing better options that might appear later.”
It seems approaching a purchase as a rental agreement strips away those concerns, including a shopper’s willingness to spend the money.
In the study, subjects were presented with advertisements of digital movie downloads and small appliances. Shoppers were most likely to get the products if renting was the only option, and those buyers displayed an interesting pattern: They acquired more things, collected less information during the decision-making process and took less time considering their choices before the completing the transaction than shoppers with buy-only options.
Renters are then, unsurprisingly, more “cost-burdened” than homeowners, according to the same Harvard Joint Center for Housing Studies report. About half of all renters were “cost burdened”, paying more than 30% of their income for housing, compared to less than a third of homeowners. 28% of renters paid more than half of their incomes for housing. Part of this may be due to underlying economic realities for these two groups.
Homeowners, by definition, have enough savings and income to buy their homes, while renters tend to have fewer such resources. The Harvard study found that nearly half of the increase in renter households came from households earning under $30,000 per year. “Affordability aside, homeownership provides you a chance to build equity and stability over time. Timing is everything in a market where we expect rates and home prices to rise,” says John Inzeo, Vice President of Wisconsin Mortgage Corporation. “Visit us online and check out our Mortgage Calculator to create your own custom analysis. Contact a Loan Officer for personalized analysis and information on current programs being offered. Our FREE/NO-OBLIGATION pre-approval is a great way to get started. “
Not being committed has a price. Even if you don’t rent consumer products like movies, appliances, or furniture, the study offers a noteworthy lesson. Consider renting a home: Buying a house requires asking a lot of questions, preparing your finances and doing extensive research but it’s smart to approach renting in a similar manner. You could waster a lot of money if you don’t think about the long-term affordability of renting your place. You may think, “I can find another apartment if this doesn’t work out,” but moving frequently is expensive too. Think you’re spending too much on rent? In many cases, it’s actually cheaper to own. Use the Mortgage Calculator provided by Wisconsin Mortgage Corporation.
Failing to think through an item’s value before you purchase is fundamental to living within your means, because even small, unnecessary purchases can add up, potentially putting you in debt. One way to keep your spending in check is to track it — it won’t take you long to figure out where your money goes, and that knowledge will help you make smart decisions about going forward.
Ready to make the transition into owning? Contact a Shorewest, REALTOR® to help you start the process.
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Categories: Home Buying