Buy Now, Pay Later vs. Layaway

Will interest-free installment loans make layaway obsolete?

Consumers have more options when they go shopping, whether they do so online or in stores beyond just the traditional payment methods. Buy now, pay later (BNPL) allows them to split their purchases into four to six installment payments, often with no interest charges.

An estimated 60% of Americans have used a BNPL service at least once, according to a survey by C+R Research. Which raises an important question: Is buy now, pay later a replacement for traditional layaway? Though these point-of-sale installment loans share some things in common with layaway, they also differ in important ways.

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

BNPL is a short-term financing option. When a consumer uses buy now, pay later to make a purchase online or in a store, they basically agree to take out a short-term loan. These point-of-sale installment loans are offered by a variety of platforms, including:

Buy now, pay later 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 buy now, pay later 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 is making 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 an installment payment option to eligible shoppers.

How Layaway Works

Layaway is a payment plan arrangement stores can offer to shoppers. Most layaway plans work the same way, including:

  • Allowing you to choose which items you want to purchase
  • Requiring a deposit against the total cost of those items
  • Having you make payments over time against the balance due
  • Giving you 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.


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 probably 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 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 buy now, pay later 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 can offer more time to pay. 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. First, when you use layaway, the merchandise you're purchasing is only made available to you when you've paid in full. You may also be required to spend a minimum amount to use layaway. And certain items may be excluded from layaway purchases.

  • It may not require a credit check.

  • You have more time to pay.

  • It won't damage your credit score if you miss payments.

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

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

  • Minimum amounts may apply for layaway.

  • Item exclusions may apply.


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

The Bottom Line

Buy now, pay later and layaway plans each have pros and cons for shoppers, but both can be an affordable way 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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  1. C+R Research. "Buy Now, Pay Later Statistics and User Habits." Accessed Sept. 2, 2021.

  2. Consumer Financial Protection Bureau. "Should You Buy Now and Pay Later?" Accessed Sept. 2, 2021.

  3. Federal Trade Commission. "Rent-to-Own, Lease-to-Own, Layaway and Buying Over Time." Accessed Sept. 2, 2021.

  4. Afterpay. "Is Using Afterpay Bad for My Credit Score?" Accessed Sept. 2, 2021.

  5. Washington State Office of the Attorney General. "Layaway Plans." Accessed Sept. 2, 2021.