Due to recent economical troubles layaway, which was once upon a very popular practice that vanished with the increase in use of credit cards, has made a come back. Layaway is a similar to credit card, but with potentially much lower costs. Basically if you want to purchase something but do not have sufficient funds to do so you can ask the store to “lay” the item “away” for you for a specific period of time after you pay an initial deposit and a possible small set up fee. Once you have paid off the item you simply pick it up and leave, this can potentially save you hundreds in interest charges on credit card. Personally I am not a big fan of layaway, I still believe if you cannot pay for it you should not buy it. Considering the other option would be using a credit card and paying 15-30% interest, layaway does seem like a better alternative. With the holiday shopping reaching its peak here are some pros and cons of layaway so you can reach your own verdict.

Pros of Layaway

  • Cost is spread over several payments, no need to come up with all the funds at once.
  • Layaway fees (often) are much cheaper than interest paid on credit card over couple cycles.
  • Set aside major purchases or Christmas gifts without worrying it’ll be out of stock.
  • You can beat the Christmas rush and shop before the stores get too crowded.
  • It can help impulsive buyers come to their senses and return items (minus fees).
  • Take advantage of sales even if you cannot afford to buy the item outright.
  • If you fail to make payments it will not hurt your credit report.
  • You can plan ahead for special occasions such as weddings.

Cons of Layaway

  • If the item is low in value the layaway fee could translate to a relatively high “interest rate”.
  • You may loose out on savings if the price of the item goes down (some stores set a limit on “price adjustment).
  • Layaway fees can be hefty; some plans come with fees to participate, from $5 to $100.
  • It may lead undisciplined shoppers to spend a lot more than they can afford.
  • If the store goes out of business you may be out of luck in getting your item or money back.
  • If you miss payments you could lose all the money you have paid.
  • If you cannot afford the item should you be really buying it?

Layaway can be a good option if used carefully, however the preferred method should still be paying everything with cash.

What are your thoughts on layaway? Is it credit card’s evil little brother or is it the consumer’s savior?