Layaway is back this year just in time for the holiday shopping season.
Although the returning program may excite and entice your sense of nostalgia as it brings back memories of Cabbage Patch Kids and Tickle Me Elmo shopping frenzies, you might want to think twice before putting your holiday shopping spree on a layaway contract.
How Does Layaway Work?
Layaway programs are basically in-store credit programs which allow you to purchase items over time without having to use a credit card.
Unlike using a credit card, however, the customer doesn’t get to take possession of the items until they have been paid in full.
Essentially, the customer picks out their desired merchandise, enters into the layaway contract by paying the service fee and down payment, and continues to make the required payments until the merchandise is completely paid off.
Keep in mind that you will lose the service fee and have to pay a cancellation fee if you cannot continue to make the required payments.
Does Layaway Actually Benefit the Consumer?
This is a tough question, and the answer will more than likely depend on your own perspective of holiday spending and your use of credit cards.
Obviously, layaway programs stop the consumer from charging the merchandise to a credit card. That’s a good thing, right? But if you crunch the numbers, a $5 service fee on $100 of merchandise is equivalent to a 44% APR on a credit card. Ouch!
The extra money spent to reduce the percentage of the service fee would no-doubt defeat the purpose of living frugally and avoiding debt.
Yes, layaway is like a store-sponsored savings plan that allows you to pay over time instead of charging the whole thing on a credit card with money that you don’t have. But why not save up for holiday spending on your own and avoid the service fees altogether?
Even if you don’t use credit cards or can’t qualify for credit cards, you can still save up money each month on your own instead of using a layaway program which charges a service fee.
And if you’re thinking about using layaway to secure the sale price of an item, remember that the service fee will ultimately reduce the amount that you are trying to save.
Who Has Layaway Programs?
Retailers such as Wal-Mart, Toys “R” Us, and Sears have temporarily brought back their layaway programs for this year’s holiday shopping season (and depending on its success, this might be an annual occurrence).
Kmart also has a layaway program for this holiday season; however, it’s an ongoing program that continues throughout the year.
Kmart’s layaway program has a $5 service fee, a $10 cancellation fee, and a 10% down payment due at the beginning of the program’s contract with the customer.
At Wal-Mart, America’s largest retailer, the minimum amount to qualify for layaway is $50 and no single item can be less than $15.
Layaway items at the superstore are restricted to toys, electronics, and jewelry. Wal-Mart also charges a $5 service fee and a $10 cancellation fee.
Sears charges the same $5 service fee for their layaway program, but they require a 20% down payment and charge a $15 cancellation fee is the customer cannot complete the layaway contract.
Lastly, Toys “R” Us includes everything in their stores for their layaway program, which charges the $5 service fee and requires a 20% down payment.
What Should You Do?
In my opinion, the drawbacks of layaway outweigh the benefits. Layaway seems more like a way for retail stores to increase a customer’s impulse shopping habits rather than a smart way to spend money.
I would recommend saving up for holiday shopping and avoid putting gifts and presents on anything that charges a fee, including credit cards and layaway.
You still have about 2 months before the holidays arrive. Use that time to save up some cash and don’t let this season be another excuse to go deeper into debt.
Let’s hear from you, what is your take on Layaway?
Image By wallygrom