Dell offers lease option to consumers When you can't teach your old PC new tricks, you need not purchase

Your computer

September 28, 1997|By Michael Himowitz

MOST PEOPLE who ask me for advice on buying a computer have a queasy feeling about the whole business. Basically, they're worried about spending a couple of grand for a machine that will be obsolete in a couple of years.

They're right -- in a way. Computers are improving so quickly that today's state-of-the-art screamer will be yesterday's PC before you know it.

But this doesn't mean a 2-year-old computer is obsolete. The Pentium 133 that I use is still quite serviceable after two years. And a computer you buy today will do whatever it's capable of doing until it dies of old age. In fact, my friend Jeff is still flogging a PC that I gave up on in 1987 because something better came along.

But as faster, fancier machines take over, older computers won't be able to run software designed for the new PCs. At some point, you'll want the old PC to do tricks that it isn't capable of performing. How long this takes depends on your technology threshold. I get the itch every couple of years. My friend Jeff -- who is not a slave to digital fashion -- is just starting to consider a new computer.

All of which brings us to a new wrinkle from Dell Computer Corp., the world's largest direct seller of PCs. If you're worried about obsolescence, Dell says, why not lease a computer from us for two years? At the end of the lease, you can buy the PC outright or lease a brand new one.

Actually, Dell has leased computers to businesses for years. But now it's trolling the consumer market, hoping to improve its margins among knowledgeable users who don't mind spending a few extra dollars for a painless way to keep up with technology. It's an intriguing idea, but whether it makes sense is another matter.

Here's how it works. You pick out a machine -- or configure one to your specifications on Dell's Web site (www.dell.com). You'll know how much it takes to buy the machine outright, and Dell will calculate the monthly lease payment. That should make it easy to compare, but these things are never as clean as they seem.

First, this isn't a no-money-down deal. You pay your first month's and last month's rent at the beginning of the lease. The second month's payment includes the shipping charge, plus a $55 "document processing fee." That's a hefty bit of cash up front. Afterward, you'll have 21 equal monthly payments.

At the end of two years, you have a choice. If you still like the machine, you can extend the lease for six months or buy it outright for its "fair market value." If you want a newer, hotter PC, you can ship the old computer back to Dell and lease a new one, or try your luck elsewhere. So you have a lot of options to chew on.

Let's say you want to buy the machine after two years. Dell defines "fair market value" as the price quoted in the Orion Blue Book, a publication that tells you what a used computer dealer would be likely to pay for the machine. This is what makes leasing a gamble, because you don't know at the outset what the fair market value will be.

In this case, however, obsolescence works in your favor. The depreciation of computers is faster than a jet-powered bobsled going downhill in January. I asked Bill Robinson, a Dell spokesman, to come up with the blue book value of a 2-year-old computer. He found a 2-year-old Dell Pentium 90 that sold originally for $1,850. It's worth about $230 on the wholesale market today -- about 12 percent of original value.

How does leasing stack up against buying a machine outright? Well, if you don't have the cash up front and you want a computer now, it's a fine alternative. If you do have the cash, you have to consider not only the price of the machine but the "opportunity cost." That's what you could have earned if you'd left the money in the bank or the stock market.

To figure this out, I priced a well-equipped, 266 MHz Pentium II machine with a 17-inch monitor, which came to $2,515, plus $100 shipping. In real life, you'll have to figure sales tax, too, but that varies by state, so I'll ignore it.

My spreadsheet swami tells me that over two years, $2,615 invested in a 5 percent bank CD will turn into $2,883 (give or take, depending on compounding methods). Even a humdrum mutual fund with a 15 percent annual return and reinvestment plan will leave you with $3,458.

Now, let's add up all the lease payments, which total $2,995, plus the fair market value of the computer. With the 12 percent rule on the original price, that's about $310. So your total cost to lease and buy is $3,305.

The verdict? If you're a competent investor, you'll come out ahead on the lease. But we're not talking about a fortune either way.

If you want to return the PC to Dell after two years, you'll pay $100 to ship it back, whether you lease a new computer or not. But if you do lease a new machine, you have an option of paying $300 to Dell to send a technician to your house to set up the new computer, transfer your programs and files to the new machine and cart the old PC away. Not cheap, but for many users it's worth eliminating the hassle.

Pub Date: 9/28/97

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.