Layaway Pros and Cons

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?

6 Responses to Layaway Pros and Cons

  1. The cons you listed greatly outweigh the pros. I agree that if you can’t afford it, you probably shouldn’t be buying it. This sems like a way of avoiding getting your financial life together. Once you make the major adjustments, you won’t have to worry about spreading your costs out. If you plan ahead, you’ll save up the money and avoid all of the risks. Then, come November (or August if you start now), you’ll have a nice little gift fund that you’ll be able to use on anything you want without having to worry about making payments and extra fees.

  2. It seems like layaway is coming back into fashion lately. I am surprised to why with the times still bad. Save up and pay in full if you want something, layaway just can develop bad shopping habits.

  3. Ha ha, great topic.

    As an experiment I put my Carhartt coat on layaway back in November because I did not have enough to cover it in that months cash envelopes, and because there were no layaway fees where I purchased it. Come December, when my clothing cash envelope was filled anew, I went and picked up my coat.

    A few cool benefits of layaway that I noticed, which you mentioned:

    1. delaying the purchase gives you extra time to think about your purchase to better decide if it is indeed something you need to buy.
    2. no fees, no supporting credit card banks.

    One thing I would like to add is how I gained more appreciate for the purchase since it was something I labored over and waited for across a two month period rather than just instant gratification from the split second of the purchase itself.

  4. @Daniel….that is a good point….if you really want something just save up and hopefully you’ll be able to purchase it.

    @Craig very true that layaway CAN develop bad shopping habits

    @Matt never thought about gaining more appreciation for the purchase and it makes sense since you’ll be working towards it you typically will value it more. Rather than just using plastic for it.

  5. Why not use the “reverse lay-away plan”? Save up your money until you have exactly what you need to make the purchase, then go buy it! If you don’t have enough to pay cash for it, you CAN’T AFFORD IT!

  6. I have worked at a retail store for 6 years, I sell simmons and Spring Air mattresses. My six years here, I have probally had 6 out of 10 customers actually pay-off their layaways each month. Even though the 4 of of 10 customers money is pure-profit to our store, it upsets me greatly. If you can’t wait long enough to save and then buy, you really cannot afford it. Maybe mattresses are a little different than like a walmart item or elsewhere, because typically they range from $200 to $8,000. However too many people lose money becuase they do not invest in themselves instead of a stores wallet. If you hold the money yourself, then if an emergancy comes up you have it, however most stores charge a fee to cancel and some do not refund layaways at all. SO PLEASE DO NOT LAYAWAY.

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