The Lowdown on Today’s Layaway Plans

Layaway is back. After being mothballed on a broad scale back in the ‘70s and ‘80s, the practice has been revived by some retailers to help pump up sales in a tough economy. Sears, Best Buy, Kmart, and Toys “R” Us are among the retailers that now offer layaway.

How Does Layaway Work?
Go to a store and pick out an item you want to buy. Pay a certain percentage down on the item, ask the store to “lay it away” for you, and then make regular payments, usually over a set number of weeks. Once you’ve paid the item off, take it home. Before the days of widespread credit card use, this was a common way for budget-conscious shoppers to buy school clothes, Christmas gifts, and other items.

Chances are your mother used layaway. Back then, stores tended to be flexible – allowing plenty of wiggle room when it came to purchase amounts and repayment schedules. Layaway items were kept in the back of the store, ready and waiting for pickup once they were paid off. Fees were minimal.

Not Your Mother’s layaway.
Despite recent moves by some retailers to make layaway a friendlier option, today’s layaway plans come with more baggage. [1] Depending on the store, minimum purchase amounts may be quite a bit higher than in the old days. Some types of merchandise aren’t eligible for layaway, and payment schedules are stricter. Some fees may be nonrefundable even if you pay off your items in full. Here are some questions to ask when considering a layaway purchase.

How much cash will I pay up front?

Typically there’s a fixed fee for opening a layaway account. Fees can run $5, $10, or more. In preparation for the 2012 holiday season, some retailers like Kmart and Toys “R” Us began waiving their fees for a limited time. Walmart reduced its fee from $15 to $5 and will refund the fee (in the form of a $5 Walmart gift card) when the layaway is paid off. Aside from fees, a down payment is required when you open a layaway account. This will usually be equal to a percentage of your total purchase – anywhere from 10% to 25%, depending on the store. [2]

How long much time will I have to pay off my merchandise?

Eight week and twelve -week payment plans are common, with payments due every other week. A higher minimum purchase amount is usually required in order to qualify for a longer payment period.

What happens if I change my mind? If you’re partway through the layaway period and decide you don’t want the merchandise, stores will refund the payments you have made up to that point – minus a cancellation fee. Cancellation fees run in the neighborhood of $10-$15. One exception to this rule is Walmart, which recently announced it would waive its cancellation fee.

How quickly will I be able to collect my items once they’re paid off? Don’t assume you’ll walk out of the store that day with your purchases in hand. Some stores warehouse layaway items in another location, so it may take a few days. This could be a problem if you need an item on Friday and it won’t arrive until Monday. Find out the store’s policy ahead of time so you don’t run into any surprises.

What are my other options? Depending on the layaway fees and the dollar amount of your purchase, it may be cheaper to charge your items to a low-interest credit card and pay off the balance over the same period of time. If credit isn’t an option, you could save a little each payday and pay for the items up front once you have enough saved.
Even though it’s almost always cheaper to save up and buy something once you have the money, there are times when layaway wins – especially with the more liberal terms retailers are offering this holiday season. It can allow you to lock in an extra-low sale price without paying up front. And as the holidays approach, it can help you clinch those hot toys and other in-demand items that may be in short supply

Donna Parshall writes articles for Check n Go about online commerce, responsible borrowing, investment, and budgeting. Visit their site to learn more about Check n Go installment loans and other services like payday loans and cash advance.

[1] “Beware Fine Print On Easier Layaway Plans.”USA Today. USAToday.com. Web. 02 Oct. 2012. http://www.usatoday.com/story/money/2012/10/02/layaway-beware-fine-print/1605515/
[2] “Retailers Revising Layaway Policies.” The Sacramento Bee. SacBee.com. Web. 23 Sept. 2012. http://www.sacbee.com/2012/09/23/4843293/retailers-revising-layaway-policies.html

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