The holiday season is usually very profitable and puts retailers in the black. They use all sorts of tactics to increase spending from the consumer. Stores have pulled out all the stops. One area they may target customers is by offering Layaway.
Layaway isn’t always the best option. Every layaway program has pros and cons you must consider before signing on the dotted line.
First, What Is Layaway?
Layaway is a purchasing model in which a buyer places a deposit on an item they wish to purchase to “lay it away” for later pick-up. Layaway also lets customers make smaller payments on the item until the purchase is paid in full.
Layaway works differently than shopping with credit cards or using installment billing plans. With layaway you make payments over time, but your purchases stay in the store until you finish paying for them.
While every store has their own rules, most layaway programs follow the same four basic process:
- You pick out the items you want to put on layaway. Many stores only offer layaway for items in certain departments only, such as toys, jewelry or electronics.
- You make a down payment. The down payment varies by store. Some stores let you choose the amount, while others charge an amount based on your total purchase price. Usually 10% of purchase price.
- Depending on the stores policy you make small payments over time. They can be weekly, biweekly, or even monthly payments.
- You pick up your items once you pay off the total purchase price plus any layaway fees.
What are Layaway Fees?
Beware of the fees. While every store has a slightly different policy, stores can charge some or all of these fees:
- Service Fee. Typically $5 -$10 The service fee covers the store’s cost of processing multiple payments and holding the item.
- Cancellation Fee. Most stores charge a cancellation fee if you decide to cancel your layaway plan, or if you cannot make all the payments by the due date.
- Restocking Fee. Many stores charge a restocking fee if you do not follow through with the Layaway by not making your payments or don’t finish paying for your products by the due date.
Pros of Layaway Plans
Comparative to other methods of financing purchases, layaway may be your best option for the following reasons:
1. Purchasing Interest-Free
There are no interest charges on your purchases. Even with the fees, layaway may cost less than paying for your holiday purchases by charging by credit card.
For example, suppose that in December you charge a $1000 TV to a credit card with interest at 24% APR (annual percentage rate) If you pay the total off in February, you’ll have paid one month’s interest, or $20 This makes the $5 service fee not seem so bad, and in this case layaway is clearly the better option.
2. Gives More Buying Options
For those who do not have a credit card or do not wish to get a store card layaway is a good alternative to pay for purchases. If you have a credit card but would like to make it through the holidays without charging all of your gifts, layaway may be the best option for you.
3. Availability of High-Demand Items
Layaway comes in handy during the busy holiday season when popular electronics and toys can sell out quickly. Putting a popular item on layaway now guarantees you will have it when you need it for Christmas.
4. Available Online
Some retailers even offer layaway through their online stores for your purchases. Online layaway saves you the hassle of waiting in long lines, dealing with crowds of holiday shoppers, or from going to several stores looking for a popular item.
5. Easy Acceptance
Unlike a credit card, layaway programs do not check income or credit checks before approval. To qualify for layaway all you need is proof of identification showing that you are at least 18 years of age and a down payment. Since acceptance policies are generally pretty relaxed, even people with past credit problems can qualify for a layaway program.