Back to the future: Layaway plans resurge
Center for Personal Finance editors
SYRACUSE, N.Y. (11/2/11)--Consumers pondering how to pay for items this holiday season, but without accumulating debt, are turning to an old standby--store layaway programs (YNN Oct. 22).
Many large retailers are either starting layaway programs or expanding existing ones, while marketing them hard to consumers who are strapped for cash or credit (The Press Enterprise Oct. 22).
Layaway lets you get the things you want by putting them on hold and paying for them over time. Once you pay off the balance, you get to take your purchases home. Toys, electronics, and apparel are the most popular layaway items, but some consumers use layaway for whatever they need. The best thing about the programs? You've paid in full and haven't racked up credit card charges.
But before you slap money on the table and reserve those things you just can't live without, understand how layaway programs work. Consider:
Your budget--Before deciding to use layaway, know the payment schedule and read the fine print. Be realistic about how layaway payments fit into your spending plan and what you really can afford. A good guide: Make sure the fees are less than 10% of the value of the item you're buying.
How you deal with credit cards--If you pay off your credit card balance each month there's no reason to use layaway. You'd be out money once you pay the layaway service fees.
Policies and fees--Understand the layaway policy, including time between payments and schedule of payments, late fee policies, refund and exchange policies, and what happens if a product is damaged while on layaway. Many layaway programs include service fees. Some programs have minimum purchase requirements and down payments of 10% to 25% of the purchase price. Cancellation fees can be as high as $35. You'll usually have 60 to 90 days to pay off your balance, sometimes longer. Staple a copy of the store's layaway policy and your payment records to the original store receipt.
Item availability--Layaway purchases are appealing for hot, hard-to-find items and limited editions.
Store reputation--Until you pay off the items in full, the store has your money and your merchandise. If the store goes out of business, you'll lose both. Know the business you're dealing with and shop only at reputable stores.
If you prefer to shop online, don't worry. Several retailers offer layaway services through eLayaway.com. You'll pay a 1.9% fee for every $100 worth of merchandise, and pay a $25 fee if you cancel your purchase.
For more ideas about controlling holiday spending, read "Smart Spending Puts Holiday Shoppers in Control of Cart" in the Home & Family Finance Resource Center.