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