How Does Layaway Actually Work?

If you are not at least 40-years-old, there is a good chance that you do not know what layaway is. For those of us who are lucky enough to have grown up in the 60s and 70s to parents that were not independently wealthy, layaway was a normal part of life. Well, it looks like layaway is making a comeback. To be honest, there are certain retailers that have been offering layaway for years. However, most retailers only offer it throughout the holiday season. Walmart, one of the world’s largest retailer, and the largest brick and mortar retailer offer layaway plans for the holidays.

So, to make sure that you understand how layaway works and whether it is a good move for you, we decided to lay out some of the most important points as well as list a few pros and cons associated with this form purchase.

First, the basic explanation for layaway is a form of purchase in which you make and down payment and/or pay a service fee that will allow you to make payments on your purchase over a specified time. What makes this different from a credit purchase is that you are not allowed to take the product that you are purchasing home with you until you have made the final payment.

While the layaway payment system may be a good approach for certain people, there are a number of considerations that consumers need to take in mind when determining if this form of purchase is right for them. I have heard layaway described as a practical Christmas gift, while it is not the worst possible choice, it is definitely not the best. The layaway game is a no-lose situation for retailers. While retailers stand to lose very little by allowing customers to participate in some form of a layaway plan, they stand to gain a lot.

Without this type of plan, there are a lot of people who simply do not have the finances to afford some of the things they would like to purchase for themselves and loved ones. Retailers have been capitalizing on this reality for years. Here is the thing: although retailers have very little to lose, it is not the same for consumers. Most retailers charge a non-refundable service fee. For instance, Walmart recently bumped their service up from $5 to $15. If you are not certain that you will be able to follow through on your purchase, you could be giving away hard-earned cash.

With a layaway plan, you choose the product you want to purchase. The retailer then takes it off of the shelf and places in storage for you. Supposedly, the service fee is to cover restocking should you not pay. In addition to the service fee, you will likely have to make a down payment, which will range from 10 to 20 percent of the purchase price. Then, you will begin the process of making payments on a weekly or bi-weekly basis until the purchase is paid in full, at which time you can take it home.

People who use the layaway plan will generally pay more for a product. One reason is obvious the extra $5 to $15 you pay for the service fee. Another way that consumers tend to pay more for layaway items is not as obvious. Once you place an item on layaway, you stop shopping for the best possible price, forfeiting any opportunity to take advantage of a great deal. Everything goes on sale at some point, but if you already have the item in layaway you will not be able to take advantage of the savings. There is one exception to this point. If the item goes on sale and the savings exceed the cost of forfeiting your layaway, then you are good, but this rarely happens.

Here are some pros and cons of layaway:

Pros 

  • Opportunity to purchase higher ticket items
  • Allows you to spread out payments based on your budget
  • Options as to the length of time to pay off items
  • Better than credit because there is no accrued interest

Cons 

  • You could lose money if you don’t pay it off
  • You could end up paying more for the item than you have to

Whether layaway is a good option for you as the holidays approach will depend solely on your particular situation. One alternative is to begin saving for the holidays season months ahead of time.


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