Buy Now, Pay Later vs. Layaway

Will interest-free installment loans make layaway obsolete?

Shoppers have several ways of making a purchase that don't have an immediate impact on their pocketbooks regardless of whether they go online or shop in an actual retail store. You've probably already heard of two of these options: buy now, pay later and the layaway option:

  • Buy now, pay later is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. By now, it has become a familiar way to pay: An estimated 60% of Americans have used a BNPL service at least once, according to a survey by C+R Research.
  • Layaway may be less familiar. With layaway, you make a down payment on an item, which the store holds for you while you pay the remainder of the price in installments. Once you've paid all the installments, you can take the item. A layaway plan ensures that you will get your chosen merchandise when you've fully paid for it.

In this article, we highlight some of the key differences between these two types of financing options, some of the pros and cons of each, as well as which one is the better choice for consumers.

Key Takeaways

  • Buy now, pay later financing is a type of short-term loan that allows shoppers to split their payments, usually into four installments.
  • BNPL services often allow users to make interest-free payments.
  • Some of the most popular apps and platforms include Affirm, PayPal, and Zip.
  • Although layaway allows shoppers to pay slowly, they don't receive their purchases until all the payments are made.
  • Consumers with poor or no credit may still qualify for BNPL or layaway as they may not require a credit check.

How Buy Now, Pay Later Works

Buy now, pay later is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Also referred to as point-of-sale installment loans, BNPL arrangements are an increasingly popular payment option, especially when shopping online.

When a consumer uses BNPL to make a purchase, they basically agree to take out a short-term loan. These point-of-sale installment loans are offered by a variety of platforms, including:

These loans generally require shoppers to make an initial payment at the time of purchase, then pay the remaining balance off in three or more installments. Many BNPL services generally charge no interest on these loans. They often don't require a hard credit check (or in some cases, any credit check at all) to qualify.

Point-of-sale installment loans are typically used to make relatively small purchases, but they can add up over time. The average consumer with outstanding buy now, pay later debt owes $883 and makes payments toward four purchases. In terms of credit limits and how much it's possible to spend using a point-of-sale installment loan, that's typically determined by the store and the buy now, pay later platform.

Before you decide to use any buy now, pay later service, check the fine print on late payments, late fees, and credit reporting to see what the consequences could be if you fall behind.

PayPal and some credit card companies, including American Express, also offer installment payment options to eligible shoppers.

How Layaway Works

Layaway is a payment plan stores can offer to shoppers. It became commonplace during the Great Depression and remained popular until the mid-1980s. Layaway options died down when credit cards rose to prominence. Some retailers brought layaway options back to their businesses during the Great Recession. Although most major names don't offer layaway anymore, plans remain in place at some smaller retailers.

Most layaway plans work the same way:

  • You choose which items you want to purchase.
  • You pay a deposit against the total cost of those items
  • You make payments over a certain period of time against the balance due
  • You receive the items you purchased once the final payment is made

Stores that offer layaway plans may charge a fee to use them, though you typically won't pay any interest since this is not a loan. That's because shoppers aren't borrowing money to use layaway. Instead, they make payments on items the store is holding for them.

Although layaway is commonly used in retail stores, it is possible to make a layaway purchase online. Merchants make debits that are scheduled at regular intervals from the ordering customer's checking account. Items remain at the retailer's distribution center until the final payment is made, after which the item is sent to the consumer.


Some stores only offer layaway plans at certain times of the year, such as the fourth quarter leading up to the holiday season.

Advantages and Disadvantages of Buy Now, Pay Later

Buy now, pay later can offer both advantages and disadvantages to shoppers. We've listed some of the most common ones below.


These plans may not require any interest payments at all. That's a plus compared to shopping with a credit card that likely has a double-digit annual percentage rate (APR).

Point-of-sale installment loans may also be available to consumers who don't qualify for credit cards or other loans based on their credit history or lack of one. Afterpay, for example, doesn't require a credit check to qualify.


Buy now, pay later arrangements could negatively affect your credit if a point-of-sale installment loan goes unpaid. A BNPL platform can report delinquent accounts to the credit bureaus or transfer unpaid accounts to a debt collector.

There's also the potential to overspend. According to a 2020 C+R Research survey, 57% of BNPL users said they regretted making a purchase using a point-of-sale installment loan because the item was too expensive. Overall, 66% of buy now, pay later users say it's a risky way to pay.

And though the number of retailers that accept BNPL is growing, not all stores have signed on. So you may not be able to use it at all, depending on where you shop.

  • Additional charges like interest and other fees may not apply

  • You may still qualify even if you have bad or no credit

  • Late and missed payments affect credit scores

  • There is the potential for overspending because buying becomes seemingly easier

  • Not all stores provide BNPL services

Advantages and Disadvantages of Layaway Plans


Like buy now, pay later, layaway may not require a credit check, making it a practical option for some consumers. But unlike BNPL, which often breaks payments into four installments that are due in a relatively short time frame, layaway plans may offer you more time to pay for your purchases. For instance, you might have two to three months (or longer) to pay the entire balance.

What's more, a layaway plan won't damage your credit score if you're unable to make the payments. Instead, you can cancel the plan and, depending on the store, often have your deposit and previous payments refunded to you—though a cancellation fee may apply.


There are some caveats to keep in mind, however:

  • When you use layaway, you can only take the merchandise once you've paid the entire balance
  • You may also be required to spend a minimum amount to use layaway
  • Certain items may be excluded from layaway purchases
  • Layaway plans may only be available for purchases made in stores, not online
  • It may not require a credit check

  • You have more time to pay

  • Miss payments won't hurt your credit score

  • Deposits and payments may be refunded if you cancel the plan

  • You can only take layaway items home once you make the last payment

  • Minimum amounts may apply

  • Item exclusions may apply

  • Often used for in-store rather than online purchases


Layaway plans may only be available for purchases made in stores, not online.

Buy Now, Pay Later vs. Layaway: Which Is Better?

Both BNPL agreements and layaway plans allow shoppers time to pay for purchases, often free of interest charges. In terms of which one is better, the answer can depend on:

  • When you want or need the items you're purchasing
  • How much time you need to pay them off

With a BNPL plan, you get the items you're purchasing right away. You'll typically need to make your first payment toward the plan as a deposit, but there's no waiting period to get the merchandise as there is with a layaway plan.

On the other hand, a layaway plan can give you more time to pay than a BNPL loan can. So which is better may ultimately depend on the timing and your reasons for making a purchase in the first place.

Does Buy Now, Pay Later Build Credit?

That depends. Some BNPL providers don't report to credit rating agencies. Those that do argue that reporting on-time payments can help shoppers build a credit history. But consumer experts note that late or missed payments can hurt your credit score.

Is Buy Now, Pay Later a Loan?

Yes. Buy now, pay later is a type of installment loan. It divides your purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to your debit or credit card until your purchase is paid in full. Even if you are not charged interest, this is still a loan.

Does Layaway Have Fees?

Downsides to layaway are the transaction, or cancellation, fees that could cost you more if you don't pay attention to the fine print in the contract and stay committed to the payment schedule.

The Bottom Line

Buy now, pay later and layaway plans each have pros and cons for shoppers, but both can be affordable ways to pay. However, if you have good credit and would like to earn some of what you spend back in the form of miles, points, or cash, you might want to consider a rewards credit card instead.

Article Sources
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  5. The New York Times. "Delayed Gratification."

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  7. Board of Governors of the Federal Reserve System. "Consumer Credit - G.19."

  8. Afterpay. "Is Using Afterpay Bad for My Credit Score?"