What Is Layaway?
Layaway is a unique purchasing method where a customer pays a down payment on an item, and the store holds it while the buyer completes the payment through installments. Once the full price is paid, the customer can take home the item. This plan serves as a safeguard, ensuring that buyers can secure their desired products even if they currently lack the total amount to pay upfront.
Key Insights on Layaway
- Layaway allows customers to place a deposit on items, commonly used by those with limited income to avoid lump-sum payments.
- Originated during the Great Depression for constrained budgets, layaway became less popular in the 1980s with the rise of credit cards.
- Layaway programs are beneficial to customers with bad credit, offering them a way to secure products without financial risk.
How Layaway Works
Layaway suits consumers with limited disposable income who may find single large payments challenging. Often, a fee is charged for storing the item until full payment is made. The risk for sellers is minimal because if the buyer defaults, the item is simply returned to inventory, and the money paid may be refunded or forfeited, sometimes minus a fee. Layaway programs support customer savings plans and ensure buyers stick to their commitment.
Online Layaway
Online layaway simplifies traditional layaway by utilizing scheduled deductions directly from bank accounts. It eliminates the need for physical storage in retail spaces, keeping items distributed until fully paid for. Usually restricted to high-value items like electronics and jewelry, this modernization suits both merchants and digital-age consumers.
Layaway vs. Credit Cards
Layaways and credit cards both facilitate affordability for expensive items via installment payments. However, key differences exist:
- Credit cards allow immediate possession of the item, whereas layaway requires full payment before taking ownership.
- Layaway generally doesn’t require good credit and avoids interest charges associated with credit cards, making it risk-free regarding credit scores.
- Credit cards offer reward points and cash-back benefits and can enhance credit scores if managed responsibly. Layaway doesn’t provide these financial incentives but offers a no-interest advantage, sparing consumers from high-interest debt.
The Origin of Layaway Plans
Layaway was born out of necessity during the 1930s’ Great Depression. It thrived until credit cards largely replaced it in the 1980s. Walmart initially ended layaway in 2006 but brought it back during the 2011 financial strain, again discontinuing it in 2021 for Buy Now, Pay Later (BNPL) options like Affirm. This shift highlights how layaway adapts to economic conditions and consumer demands.
Current Use of Layaway
Numerous retailers maintain layaway options with terms that vary:
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Army & Air Force Exchange offers 30, 60, and 120-day layaway based on item types, including select fees and policies.
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Baby Depot and Burlington Coat Factory feature 30-day layaway options, with specific down payments and cancellation fees.
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Big Lots utilizes Price Hold for securing item prices and Progressive Leasing for a lease-to-own program on larger purchases.
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Hallmark Gold Crown stores’ layaway is seasonal, typically requiring a 20% down payment during activity periods.
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Kmart and Sears provide layaway both online and in-store, with item-specific terms and conditions.
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Marshalls uses eLayaway offering easy approval loans, with down payments and installment plans suited for various credit profiles.
Layaway Versus Credit Cards: Making the Right Choice
Credit cards facilitate immediate purchase access without down payments and can build credit scores while offering rewards, unlike layaway plans. However, they impose interest if not paid off promptly, potentially leading to high debt. Layaway emerges as a better alternative for those avoiding debt and interest while not requiring good credit. Careful weighing of immediate versus deferred item possession, financial discipline ability, and long-term benefits can help decide between layaway and credit cards.
Related Terms: installment debt, disposable income, lump-sum payment, bad credit, default, credit score.
References
- Corporate Finance Institute. “Layaway”.
- Experian. “Layaway or Credit: Which Is Best?”
- Walmart. “Wal-Mart Will Phase Out Layaway Program”.
- Walmart. “Walmart to Offer Special Layaway Option this Christmas”.
- Walmart. “Walmart Affirm”.
- Exchange. “Easy, Convenient Layaways”.
- Burlington Coat Factory. “Stores Offering Layaway”.
- Burlington Coat Factory. “Try Layaway”.
- Big Lots. “FAQs: What Is the Price Hold Program?”
- Big Lots. “1428 Big Lots Locations in the United States”.
- Big Lots. “No Credit Needed: Apply Now”.
- Hallmark. “Does Hallmark have a layaway program?”
- Kmart. “Kmart Layaway”.
- Sears. “Pay Your Way With Layaway”.
- Transformco. “Sears Holdings Initiates Processes To Accelerate Strategic Transformation And Facilitate Financial Restructuring”.
- Marshalls. “eLayaway”.
- Vivaloan. “You deserve a much better loan”.
