The Lowdown On Layaway
Layaway never completely disappeared from the retail landscape but it’s become more prominent with promotions by some national chains and locally-owned shops. Instead of paying for merchandise in full with paper (cash, check) or plastic (credit card, debit card), you enter into an agreement to pay over time, taking possession of an item after you have finished paying. From a financial-discipline and delayed-gratification perspective, layaway is a great concept. Here are questions to ask to make sure a layaway program makes sense for you.
The big question for me is:
- Does the store stock this item on a regular basis and if I wait until I have saved the money to pay for it, will it still be available? (If the merchandise would still be around or if I could find a better deal later, I might save my money and buy later).
You might ask the store or online layaway provider:
- If the item goes on sale before I finish paying for it, will I pay the full retail price or the discounted sale price?
- If I change my mind about the purchase, will all my money be refunded or will I receive a store credit?
- Are there fees or other charges associated with the layaway program?
- How often do I need to make payments?
- Will I lose my deposit and money I’ve paid toward the item if I miss a payment?
- Will my item be taken out of inventory and set aside?
- Where will my item be stored?
Several years ago, I bought a suit for work by using layaway with a local shop, making payments of irregular amounts when I could (usually every payday); when the balance was paid in full, I took the suit home. Having had problems finding professional clothing in my size (when I was living in a small town in the days before online shopping), I wanted to go ahead and claim the clothes, then pay. Many layaway programs now require paying the full amount within 90 days or less, rather than making payments in an indeterminate time frame.
The gotta-have-it-now approach to shopping and (prior) access to credit are typically mentioned as the reasons for the decline in layaway’s popularity. But, for the retailer, these programs can be time-consuming to administer, require valuable sales floor or backroom space for storage, and reduce the amount of cash available to invest in new inventory, all of which impact profitability. "Same as cash" programs were more attractive from a merchant's perspective and even for some consumers (warning: if you miss the payment deadline, interest is often calculated on the entire purchase amount and not the outstanding balance). Slower sales activity, tighter credit, and consumer preference may have led to a new interest in the pay-first, take-it-home-later programs.
Still, consider if the retailer has the policy, processes, and systems in place to make sure the layaway deal works for you. Get the policy in writing, document payments, and follow the program guidelines. This guide from the FTC gives consumers an idea of what a well-managed layaway program should look like. Checking around my area, I see that bike shops and jewelry stores are offering layaway as well as national retailers, such as Kmart, Sears (recently announced return of layaway), Burlington Coat Factory, and Goody's. There are also online layaway programs offered through eLayaway and Lay-Away.com. (See links for policies.)
An alternative to layaway is to save in a regular savings account and then buy. You can earn interest while you save and have the no-fee option of changing your mind; however, the item you want to buy may no longer be available.