What Is Layaway?

Layaway is a purchasing method in which a consumer places a deposit on an item to "lay it away" for later pick-up when they are financially positioned to pay off the balance. Layaway also lets customers make smaller payments on the product until the purchase is paid in full. A layaway plan ensures the consumer will get their chosen merchandise once it's fully paid.

Understanding Layaway

Layaway works for consumers who have limited disposable incomes and are unable to make larger lump-sum purchases. There is sometimes a fee associated since the seller must keep the item in storage until the payments are completed. With little risk involved for the seller, layaway can be readily offered to those with bad credit. If the transaction is not completed, the item is simply returned to the shelf. The customer's money may be either be returned in full, forfeited entirely, or returned minus a fee.

Layaway programs also benefit retailers by allowing them to offer products to lower-income customers as a type of savings plan. Because the customer has already made a commitment to purchase the product on layaway, he or she cannot succumb to the temptation to spend that money elsewhere.

A Brief History of Layaway

The advent of layaway came during the Great Depression of the 1930s. However, it fell out of favor during the 1980s, as the ubiquity of credit cards decreased its utility. In September of 2006, Wal-Mart discontinued its layaway service in all its stores, citing a decrease in demand and rising implementation costs.

However, in September of 2011, Wal-Mart resumed the service, due to new financial difficulties brought on by the Great Recession and subsequently increased consumer credit constraints.

During the 2012 holiday season, many retailers heavily advertised their layaway service, offering it for free (or effectively free) if certain conditions were met. Kmart has continuously provided layaway in the United States for over 40 years. At one time, it was the only major national discount retailer offering the service.

Key Takeaways

  • The term "layaway" refers to the retail purchasing method in which consumers place a deposit on items of merchandise—to "lay them away" for later pick-up at a time when they have the funds to pay the balance in full.
  • Layaway programs are generally aimed towards shoppers with limited income who may struggle to pay for purchases in one lump sum.
  • Created during the Great Depression of the 1930s, layaway programs declined during the 1980s, as the ubiquity of credit cards decreased their utility.

Online Layaway

Online layaway programs let consumers purchase items via scheduled deductions that are taken from a checking account. Online layaway simplifies layaway for both merchants and consumers, by removing associated storage and bookkeeping costs.

The layaway items remain housed at the distribution center during the layaway period, rather than taking up valuable retail warehouse space. During the Christmas season, some individuals traditionally pay for other customers' layaway purchases, as a charitable gesture.

[Important: retailers often restrict layaway purchases to more expensive items, such as jewelry and electronic goods; smaller items like toys are typically unavailable for purchase through layaway programs.]