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Layaway Programs: How to Buy What You Can’t Afford (Yet)

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In the midst of the economic recession a few years ago, layaway programs made a big comeback. Previously a great method for buying items that may have been on the expensive side in eras when credit was not available to many consumers, the same economic conditions returned when credit card offers became scarce recently. Layaway programs are popular around the holidays, because consumers who plan in advance can reserve popular gifts (like the year’s hottest toys) while saving for the complete purchase, regardless of whether a credit card is available.

Taking Walmart’s layaway program as an example, we can draw a comparison between shopping with a layaway program, using a credit card, and paying with cash. Assume you use Walmart’s full layaway period, October 17 through December 16, you make payments for two months before receiving your item, and you pay a $5 up-front fee for the privilege. Assume also you are buying items that cost $250 in total. The $5 fee over two months equates roughly to a 12% annual percentage rate. That’s not that much different from credit card rates, possibly a little lower than average.

With a credit card, however, you can take the purchased item home immediately. With layaway, the store holds the product for you until you’ve completed your payments. If you decide later on not to finish purchasing an item on layaway, you’ll need to pay another fee in order to get your initial deposit of 10% of the item price and any subsequent payments back.

Without a layaway program or a credit card, you would need to save on your own before having enough cash to buy your items. If it takes two months to save up, you would receive the item at the same time you would have if you had taken advantage of layaway, but without the item reserved for you, it might be sold out by the time you can afford to buy it. That’s reason enough to avoid some of the most popular holiday gifts. The best option is to save for your holiday spending — or spending for any large item for which a layaway program would be beneficial — well enough in advance of needing to complete the purchase.

There are several benefits of taking advantage of a layaway program for holiday shopping.

  • Reserve your item in advance, ensuring the popular item will be available later.
  • Avoid traditional banks and credit cards, and likely pay smaller fees.
  • Keep your savings in your bank account.

Layaway programs provide an alternative to saving in advance, with a fee to pay for the privilege. In some cases, it can be a better deal than paying with a credit card, though consumers making credit card payments have the advantage of taking the purchased item home immediately.

Besides these benefits, there are potential drawbacks and dangers. One important drawback of layaway programs is that you lock in the price when you place your downpayment. If the store offers a sale later on, you won’t be able to take advantage of the lower price without cancelling your layaway and incurring fees to do so. If the item you wish to buy is offered at a deep discount, you may be willing to incur the cancellation fee, but otherwise the result is paying more to take home an item than shoppers who bought the item that day without the help of layaway.

Be aware of your store’s policies. While the cancellation of a layaway program usually won’t prevent a full refund (minus fees), some stores take a stronger stance and offer no refunds.

There is a lot of pressure to buy gifts during the holiday season in an effort not to disappoint loved ones. It’s much easier to manage expectations — or it can be, if a family has a philosophy of managing expectations already — than to jump through financial hoops to buy the latest and greatest trendy gifts.

Have you taken advantage of a layaway program?

Published or updated November 2, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar wylerassociate ♦162 (Cent)

I’ve never used a layaway program so I don’t know the pros & cons of the program.

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avatar Money Beagle

We save money each month for Christmas gifts, so that we don’t need to use layaway or credit cards come holiday time. We still do use credit cards, but only as a pass through to get the cashback rewards that our card offers.

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avatar DonnaFreedman ♦90 (Newbie)

When I was a teen my sisters and I put clothing on layaway. It would take us weeks to pay the stuff off, a few dollars at a time. As I recall, this particular clothing store (locally owned) did not charge a layaway fee.
For people with no credit or people who have credit problems (e.g., maxed-out card or debt that’s already high), maybe it’s best to lay away despite the fees. You’re less likely to overdo it, the way you might with a card, and the discipline of making weekly payments is good for you.
Myself, I’d focus on getting out of debt first. Then again, I don’t have small kids at home any longer. Dick Gregory said in his autobiography that Christmas was the only time of the year that he really felt poor. If I were as broke now as I once was and had a child at home, I’d want at least one gift under the tree.
Saving weekly — a homegrown Christmas Club! — is a good idea, as is shopping year-round at rummage sales and from clearance tables. But if you’re already strapped and maybe pressed for time (single parent, two-income family making minimum wage and scrambling for child care) it can be hard to carve out much time to plan, let alone shop. Sometimes it’s all you can do to get through the day. For those folks, layaway might make sense — as long as they kept expenditures reasonable and were diligent about the payments.

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avatar Jack

Layaway is a rip-off. As is paying fees and interest on credit cards. If you can’t afford something from Walmart or Toys are Us, don’t buy it.

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avatar Maggie@SquarePennies

I agree that managing expectations is good. When the kids are older you can talk about keeping to a dollar amount. We manage to find deals year round, but many kids are very specific about what they want. We always had our kids make a wish list. They knew very well that they would get something from their list, but other things not on their list would be their surprises. That way we could choose the price level and our own comfort level about gifts. Any deals we found were the surprise items.

When I was a substitute teacher in a low-income area I noticed that some of the poorest kids got the priciest gifts. I’m sure their families were trying to help them feel less poor, but I shudder to think what their credit card bills looked like.
Layaway could be good for being more realistic about what is actually affordable in the family budget.

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avatar Ceecee ♦53 (Newbie)

I’m with Jack—if you can’t afford it don’t buy it. Knowing your credit card cutoff dates can help. Put it on the card that will let you pay the latest, and pay it all off! Something tells me that layaway is a way to make poorer people spend beyond their means and get further behind.

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avatar lynn ♦155 (Cent)

You hit it on the head of the nail, CEECEE. I must confess I used it when the kids were small so they didn’t see what Santa brought. The item would go on sale and I’d add to the layaway at the KMART. It worked for us when we needed to hide things. Our home was small, so they would have found anything. They knew the hidfing spots!

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avatar Steven J Fromm

This is just another way to lure people who cannot afford something into being locked into a purchase without adequate funds. Our financial priorities are warped in this country with most people living beyond their needs and companies taking advantage of this weakness. If you cannot afford to buy it, just walk away. Give your ego a rest and be sensible.

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avatar LaTisha @YoungAdultFinances

I’m making it a point to set a spending limit this year for Christmas. And a firm one at that. Every year I set a budget but I always end up buying more. I’m just a generous persons I guess. So this year I’m planning to wait until the last minute to shop. That will prevent me from going over budget.

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avatar shellye ♦107 (Cent)

As a child I remember my grandma occasionally purchased things on layaway, usually from Sears, JCPenney and Woolworth. I don’t think they charged any fees, and I remember how excited she would be when she would come home with the item once it was paid for. If the store is willing to hold it for you, (and earn income on the payments you are making), I don’t see anything wrong with it.

I use several layaway programs of my own creation; I use MyPoints to earn points for gift cards (just cashed them in this past week), My Coke Rewards for movie tickets that enable me and my family to see holiday movies for free, some credit card points earned from a couple of big home improvement projects (that have been paid off, BTW). I also have a Christmas club account at my credit union that I contribute to faithfully each month.

If you want to pull out all the stops at Christmas without going into debt, you simply have to plan for it the other 11 months of the year.

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avatar lynn ♦155 (Cent)

Well said and to the oint.

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avatar tigernicole86 ♦55 (Newbie)

When I was younger, about 5 or 6, I never realized what the fruit baskets or boxes of food coming in from other meant at Christmas. Being that my mom worked for minimum wage at a Pizza Hut and my dad was a poorly paid private high school teacher who had 5 kids and a boatload of debt there wasn’t a lot of wiggle room for money for Christmas. Once I realized we were so broke around age 9 or 10, I finally scaled back expectations to some paperback books and socks. Now, since I’m in my mid-twenties living with my long term beau and my only dependent is a cat, I have a nice budget for Christmas that I save for all year and use different sites to earn gift cards to supplement them. As much as layaway would work for me on a very short-term basis, I know I’d prefer not to use it.

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avatar Cejay ♦1,521 (Half-Dollar)

I have not taken advantage of layaway and probably will not. But I do remember my parents using it to buy the Christmas gifts for us. One good thing is that the store does keep the gifts so there is less chance of them being found by nose kids. I still remember that is how I found out the truth about Santa Clause. My sister has taken advantage of layaway and loves the fact that it is available. But she has no credit card.

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avatar qixx ♦1,895 (Half-Dollar)

I’m a big fan of using various programs such as MyPoints to earn gift cards. I prefer to use them on vacation instead of Christmas. But my sister uses them for Christmas and has not needed a Christmas budget for the last 4 years and her oldest is 6.

On the layaway vs Credit Card – if you time your purchase right and use a card without a balance you can get almost 2 months to pay it off. You’ll get at least a month for sure.

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