A:

Layaway plans are a way to buy larger items without having to come up with the entire cost at once, and without paying the exorbanant interest fees associated with most credit cards. Many stores will even allow you to put an item into layaway with no fees. Obviously, the disadvantage of layaway is that you cannot have the item you purchased until it is paid off in full. However the many advantages (such as no interest, fixed future price and no-risk of default over a missed payment) is often more than enough to outweigh the credit card interest that can be avoided. As well, layaway plans report to credit bureaus, so paying off your item over a series of equal installments is a great way to add another good reference to your file. (Read Consumer Credit Report: What's On It to take a closer look at the various components and considerations of the personal and financial data that go into this dossier.)

For many, layaway plans are used as a budgeting tool. Instead of trying to save for an item in your own account, the layaway plan is a forced savings program which has to go towards the purchase, and cannot be used for something else. By adjusting your household budget to allow for the layaway payments, you are getting into the habit of saving a regular amount. When the layaway payments have ended, you already know you can afford them, so you might as well continue the payment into your own savings account.

For their forced savings, no interest and lower-risk advantages, layaway plans are a great way to obtain the larger items you may require without having to borrow the money. With no interest, this will be much quicker than the same payment against a store credit card.

This question was answered by Ayton MacEachern

RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  3. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  4. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  5. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  6. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  2. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  3. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  4. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  5. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  6. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  7. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  8. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  9. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  10. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
RELATED TERMS
  1. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  2. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  3. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  4. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  5. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  6. Revenue-based Financing

    Revenue-based financing, also known as royalty based financing, ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!