One of the items making a comeback since the recession has been the concept of layaway. If you are considering making a large purchase, 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 specific 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 indeed 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 costs. 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.
How to Find Stores Offering a Layaway Plan
To find stores that offer a layaway plan, you can search “[store name] + layaway.” For example:
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.
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 blog at Miranda Marquit.