What is a Layaway Plan? The Advantages and Disadvantages

Halloween is over and the holiday shopping season — don’t fool yourself…it starts way before Thanksgiving — is underway. One of the items making a comeback since the recession has been the concept of layaway. If you are considering making larger purchases for the holidays, layaway can help you avoid the costs associated with putting your big ticket items on a credit card. You still get the benefit of small, manageable payments, but without the element of borrowing.

What is Layaway?

A layaway plan allows you to set aside an item and pay for it over time. The store promises to hold an item for you, at a certain price, and you make regular payments, usually over a period of four to eight weeks (although some layaway plans will let you go longer). So, if you want to purchase $200 in Christmas presents for your kids, you could reserve them, and then make payments of $25 over eight weeks.

With a layaway plan, though, you don’t actually get to bring the items home until you make your last payment. If you want to bring your purchases home immediately, you will need to use a credit card, or get some sort of financing deal. As long as you make your payments as agreed, you will get your items, and you won’t have to pay interest.

Advantages of Layaway

As consumers become increasingly wary of credit, layaway offers a viable option. Consumers can buy big ticket items, but they don’t have to come up with the money all at once or use their credit cards. This eliminates any possibility of getting into debt, missing a payment, getting hit by a late fee and finance charge, and seeing your credit score dinged. For someone who wants to plan ahead, and make small payments to keep the holiday budget within the bounds of reason, layaway can be a good choice.

Things to Watch Out For

As with any financial decision, there can be drawbacks to using layaway. First of all, you need to make sure that you can afford the payments. Layaway is a waste of time if you won’t be able to make the weekly payments required to pay for your item. Plus, you can’t bring it home. If it’s something you want to use immediately, layaway won’t help you.

You should also be aware of fees and restrictions that can come with layaway plans. Make sure you understand all of the terms. Some layaway plans include:

  • A minimum purchase amount – You might be required to purchase a certain amount of merchandise to qualify for layaway. Find out if this purchase amount applies to individual items, or if you can combine prices on items to reach the minimum.
  • Price guarantee – Most layaway plans will honor the lower price if the item increases in price between the beginning of the layaway period and the end of the period (double check, though). What you really want to know is if the store will automatically give you the lower price if the item drops in price during the layaway period.
  • Program fee – You might be charged a program fee for the layaway plan. Most of these fees are small, usually a flat fee. Some, though, might charge a percentage of the purchase price. If the layaway program comes with a fee, run the numbers to make sure that it is truly less expensive than using credit.
  • Re-stocking fee – Even if the store doesn’t charge a program fee, you still need to be aware of other fees. Many stores, if you change your mind, will charge you a “re-stocking” fee. This can be a flat fee, or a percentage of the purchase price. While you will generally be refunded the money you have already paid, the re-stocking fee will reduce the overall amount.

The Bottom Line

A layaway program can help you purchase big ticket items for the holidays without resorting to credit. The right plan can help you manage your payments and stick to your budget. However, you do need to be careful. Understand the fine print, and know the terms of the layaway agreement so that you don’t run into unexpected — and unpleasant — surprises.

About the Author

By , on Nov 3, 2011
Miranda Marquit
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.

Leave Your Comment (4 Comments)

  1. Layaway seems like a stupid concept for stupid people. People who use layaway can’t save money for themselves. They need a structured payment system to help them manage their own money so they can buy things. I’ll bet the same people who use layaway also use regular mail to pay bills and actually go into the electric company, water company and cellphone stores to stand in line and pay their bills too.

  2. Kolton says:

    I have never had experience with using a layaway plan either, but they do seem to be very beneficial. I know there are draw backs and fine print, but you would think if you made the all the payments on time they would keep the item as sold, until you fully pay it off.

  3. It depends on the store. Most of them, though, keep it in stock for you. When I worked in retail — before layaway all but disappeared — we kept the item in the back, with a name on it. That way it was readily available whenever the shopper returned and paid in full.

  4. Penny says:

    Do they actually take the item you’re putting on layaway and stick it in the back room somewhere with your name on it? I’ve never done layaway (my shopping list isn’t that long and I don’t shop far enough in advance) but one thing that would concern me is that they would turn around and sell the item to another person and then not be able to get it back in stock for me. Is that ever an issue?

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