Layaway plans were popular with retailers starting in the 1920s when people often didn't have enough money to purchase large items outright. Once stores began offering their own charge cards and credit plans in the 1980s, layaway fell by the wayside at most stores. They are beginning to make a comeback as the recession has left many consumers without access to credit. (For more information on Layaway, read Layaway Plans: Get The Goods Without Going Into Debt.)
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In its simplest form, layaway plans allow you to set something aside at the store while you make payments on it. You don't own the item and can't take it with you until it is fully paid. The store is simply reserving it for you. Some stores offer it on purchases over a certain dollar value, while some will let you put anything in the store on layaway. The store often charges a layaway fee in order to hold the merchandise, but there is no interest involved because you are not purchasing on credit. (To help you manage your holiday debt, check out How To Reduce Holiday Debt.)
Who Offers It?
Each store's layaway policies are different. Some chains only offer it on certain items, and some only at certain stores.
- Walmart – Layaway is available starting Oct. 17 and ending Dec.17 on electronics, jewelry and toys. There is a 5% layaway fee, and the plan is available on total purchases over $50 with each individual item over $15. The required deposit is 10%.
- TJ Maxx – The layaway plan is only available in some stores. You can layaway for up to 30 days with a 10% deposit and a $5 fee.
- Kmart – This is one of the best layaway programs and has been a staple feature of this chain throughout its history. Layaway is available both for in-store and online purchases with a deposit of $15 or 10% (whichever is more) plus a $5 layaway fee. Purchases can be paid off over a maximum eight-week period and there is a $10 fee for canceled orders.
- Sears – Layaway is offered only on certain items, which are marked in the store. There is a $5 fee and a deposit of the greater of $20 or 20% is required. The payoff period is eight weeks and there is a $15 fee for canceled orders.
- Best Buy – Only certain items over $250 are available for layaway. The deposit is 25% of the total purchase and the layaway fee is 5% (higher than most other plans). You can select either an eight or 12 week repayment period.
The Downside of Layaway
Layaway can be a great way to plan your holiday shopping or to budget for other large purchases. There are, however, some issues to consider before entering into this type of plan. The first is whether you can really afford the purchases. Because layaway allows you to spread your spending out, it can look like a smaller total outlay of cash than it really is. Be sure to budget carefully to have the money on hand to make the payments. Also, make certain that you understand how the plan works and what the fee structure is. Many stores offer holiday sales during November and December. If you place an item on layaway, your are in most cases locking in the current price for the entire layaway plan, therefore giving up the opportunity to buy that item at a lower price. In addition, some plans charge an additional fee if you cancel your layaway plan, leaving you with a net expense. Check with your store to ensure you understand all of the policies and rules related to layaway plans.
Buying on credit is another way to make large purchases, but this is often far more expensive than layaway because you are paying an interest rate that can be as high as 25% annually, depending on the card. Buying on plastic also makes it easy to overspend. The best alternative is to do it the old-fashioned way: save up for large purchases ahead of time and buy with cash. (For more, see Tips For Avoiding A Holiday Spending Hangover
The Bottom Line
Layaway plans can help you to budget holiday spending and other large expenses without leaving you with a credit card hangover. Understand the plan ahead of time so that there are no nasty surprises later on and be sure to only put on layaway what you can afford.