What Is Layaway?
Layaway is a way of buying something in which a consumer makes a down payment on an item, which the store then holds for them while they pay the remainder of the price in installments, after which they take possession of it. A layaway plan ensures that the consumer will get their chosen merchandise when they've fully paid for it.
Layaways vs. Credit Cards
There are both similarities and differences between layaways and credit cards. Layaways and credit cards are each used to purchase an item that an individual cannot currently afford. Both have late payment fees as well as penalties for default. Both also allow for payment in installments over a certain time period.
One of the differences between the two is that with a credit card, an individual can take home the item they purchased right away; with layaway, an individual can only take home an item after they have fully paid for it.
Layaway requires a deposit, whereas a credit card does not. Depending on the layaway, you do not pay interest on the unpaid balance.
With a (credit card), you do, which can quickly increase the cost of a purchase and send individuals into credit card debt.
If you default on a layaway plan it will not impact your credit score, whereas on a credit card it will.2 Also, you do not need good credit to use a layaway program, but you do need good credit to receive a credit card or at least good terms on a credit card.
Credit cards are usually a better option if you can pay off your balance in full the next month and not accrue interest. Credit cards allow you to build a positive credit history, take advantage of rewards plans by which you can earn points or cash back, and receive your item right away. However, if you can’t pay your balance in full the next month, layaway can be a better option to avoid accruing the high-interest debt associated with credit cards.
The Origin of Layaway Plans
The advent of layaway plans came during the Great Depression of the 1930s, when most individuals and families were suffering greatly financially. It stayed popular until the 1980s, when the increasing availability of credit cards began to make it superfluous. For example, in September of 2006 Walmart ended layaway service after 44 years, according to reportage by NPR. The company blamed declining demand and escalating costs.
However, in September of 2011 Wal-Mart resumed the service, due to new financial difficulties brought on by the Great Recession, and subsequently increased consumer credit constraints. However, it was only brought back for the holiday season. It remained in place until 2021, when Walmart once again discontinued its layaway program, replacing it with a buy now, pay later (BNPL) program called Affirm.
In essence, the Affirm program lends customers the money to buy their item, which they don’t have to wait to take home. They repay the loan with regular payments over a set amount of time, anywhere from three to 24 months, depending on the size of the loan. Items available for such financing include electronics, video games, tools, toys, musical instruments, jewelry, home improvement, and apparel.
Though there are some 0% promotional interest rates available, the offer generally comes with interest rates ranging between 10% and 30%. Creating an Affirm account will not affect your credit score, but purchasing an item with it could. These features differentiate the program from other BNPL offers, making it more like using a credit card. However, unlike credit cards, Affirm does not charge fees of any sort.
Does Anyone Still Use Layaway?
As of 2021, there are still some companies that offer layaway programs, though the details vary among them. Here are eight.
Army & Air Force Exchange
This military retailer offers three layaway options.
***30-day layaway for all clothing, handbags, and shoes
***60-day layaway for all other merchandise (except jewelry)
***120-day layaway for fine jewelry
Your purchase must be for at least $25, and there is a 15% down payment and nonrefundable $3 processing fee. If you cancel the purchase, a $5 fee is charged. Excluded merchandise consists of clearance items; computers, peripherals, and major appliances; furniture, mattresses, exercise equipment, and seasonal and outdoor living items; and electronics costing $299 and up. The service is only available in the store.
Baby Depot and Burlington Coat Factory
Owned by the same company, these two stores offer the same layaway plan. It is not available at every store, though, so you should check out the online list on the Burlington website.
You can put your merchandise on layaway for 30 days. There is a down payment of $10 or 20%, whichever is greater, and a nonrefundable $5 service fee. Payments can only be made in the store by cash, check, or credit card, and you can pay by installment or in full. If you cancel, there is a $10 fee. Ineligible merchandise includes food items, wall art, rugs, lamps, and furniture.
Big Lots
Big Lots has two layaway programs. One is called Price Hold. It means that the store will maintain the current price of an item when it is out of stock or when you can’t pay for it in full. The price will be maintained until either the item is restocked or you have fully paid for it. There is no set time limit, but the company will require you to notify it when you are within two weeks of paying it off to be sure that it is available for pickup.9 The program is only available in stores that sell furniture, a list of which can be found by using the Store Locator on the Big Lots website.
The Progressive Leasing program is a 12-months-to-ownership offer (in California it’s three months). You may take your merchandise home, but you are only leasing it until you pay for it in full. To qualify, you only need to be 18 years old, have a valid Social Security number or individual taxpayer identification number (ITIN), have an open and active checking account, and own a credit or debit card. There are no application or processing fees. Your payments will be drawn electronically from your credit or debit card.11
You can purchase your product early, but it will cost more than the retail price to do so (except in California). Eligible items include sofas, love seats, sectionals, dining sets, and mattresses, as well as seasonal items such as outdoor patio furniture, gazebos, umbrellas, chairs, and more.11
Hallmark Gold Crown
Some Hallmark Gold Crown stores offer a layaway policy. It is only in effect from July through December, and the layaway term is up to 90 days. There is a 20% down payment. The policies can be different at different stores, so make sure to check with a sales associate for specifics on fees, cancellation, possible interest charges, etc.
Kmart and Sears
Both online and in-store layaway plans are offered by Kmart and Sears, which are owned by the same parent company, Transformco.
The duration of layaway at the remaining Kmart and Sears stores is either eight weeks or 12 weeks, with the latter only available in the store for items costing $300 or more. There is a down payment of $10, and payments must be made every two weeks either online or in the store. There is a nonrefundable $5 service fee for eight-week items and a $10 service fee for 12-week items.
If you miss a payment, you have seven days to catch up, after which your layaway plan is canceled, and you pay a $10 or $20 cancellation fee, depending upon the length of your layaway. If you cancel the contract, you will get a full refund of any payments made to date except for service and cancellation fees. Only items that are marked “Layaway Eligible” can be purchased with the plan, and you can find that label online on the product page.
Unfortunately, according to reporting by the health website Best Life, Kmart is closing most of its stores, with only six scheduled to be still operating at the end of 2021. The Chicago Tribune reported that only 35 Sears stores remained in business as of Sept. 16, 2021. Their previous parent company, Sears Holdings, filed for bankruptcy in 2018 and was acquired by Transformco, which has been closing stores and selling off assets.
Marshalls
Marshalls has a program called eLayaway that offers loans through a company called Vivaloan. Same-day approval is possible after filling out a seven-minute application. A 10% down payment is required, and there is a nonrefundable $5 service fee. Installment payments begin within 30 days.
Even people with poor credit can get one; you only need to be 18 years old with a regular income. On-time loan payments are reported to credit agencies, which can improve your credit score over time.
What Is a Layaway Plan?
Layaway is a purchasing method by which a consumer places a deposit on an item to “lay it away” for later pickup when they come back and pay the balance. It often charges no interest and is available to almost anyone, even those with bad credit. Paying on layaway generally does not affect your credit score, unlike with BNPL plans and credit cards if payments are missed.
What Are the Origins of Layaway?
Layaway plans first appeared after the Great Depression, motivated by the financial hardship so many people were experiencing. They remained popular until supplanted by credit cards in the 1980s, then made something of a comeback after the Great Recession of 2008. Currently, their popularity is once again receding, with BNPL plans proving more popular.
Is a Layaway Plan Better Than Using a Credit Card?
It depends. Credit cards allow you to own your purchase immediately and don’t require a down payment to do so. Using them responsibly can build your credit score, which layaway plans usually don’t do. Furthermore, credit cards come with rewards programs, unlike layaway plans.
That said, layaway plans usually don’t charge interest, while credit card interest rates can be quite high and mount quickly. And in the case of a default, with a credit card, your credit score will be damaged; with a layaway plan, it won’t be affected. And of course, you need good credit to get a credit card but not to be eligible for a layaway plan.
If you can pay your credit card bill in full every month, it is a better way to buy goods than a layaway plan is. If you can’t, however, then layaway is probably the way to go.
KEY TAKEAWAYS
The term “layaway” refers to the retail purchasing method by which consumers place a deposit on items of merchandise—to “lay them away” for later pickup at a time when they have the funds to pay the balance in full.
Layaway programs are generally geared toward shoppers with limited income who may struggle to pay for purchases in one lump sum.
Created during the Great Depression of the 1930s, layaway programs declined during the 1980s as the ubiquity of credit cards decreased their utility.
Understanding Layaway
Layaway works for consumers who have limited disposable incomes and are unable to make larger lump-sum purchases. There is sometimes a fee for this because the seller must keep the item in storage until the payments are completed. With little risk involved for the seller, layaways can be readily offered to those with bad credit. If the transaction is not completed, the item is simply returned to the shelf. The customer’s money may either be returned in full, forfeited entirely, or returned minus a fee.
Layaway programs also benefit retailers by allowing them to offer products to lower-income customers as a type of savings plan. Because the customer has already made a commitment to purchase the product on layaway, they cannot succumb to the temptation to spend that money elsewhere.
Online Layaway
Online layaway programs let consumers purchase items via scheduled deductions that are taken from a checking account. Online layaway simplifies layaway for both merchants and consumers by removing associated storage and bookkeeping costs. The layaway items remain housed at the distribution center during the layaway period, rather than taking up valuable retail warehouse space.
Use cards, and live within your means.
Credit card companies can usually increase your interest rate if they give you 45 days of advanced notice, but there may be steps you can take to lower your credit card interest rate.
Your card issuer generally must give you 45 days of advanced notice before it raises your credit card interest rate for new purchases you make with that card. Card companies are generally restricted from raising the interest rate for your existing balance, but there are certain exceptions.
Interest rate changes for new credit card purchases
A credit card company is generally not permitted to increase your interest rate on new transactions during the first year of your credit card account.
After that initial year, they’re required to provide 45 days of notice before an interest rate change, and any purchases you make with the card more than 14 days after the advanced notice are considered new transactions.
Interest rate changes for an existing credit card balance
A card company is not permitted to increase your interest rate on your existing purchases, except under the following circumstances:
--A temporary rate – such as a low rate on a balance transfer – expires. That temporary rate must last for at least 6 months.
--You have a variable interest rate and the index to which your rate is tied (for example, the U.S. Prime Rate) has increased.
--Your minimum payment has not been received within 60 days after the due date.
--You successfully complete or fail to comply with the terms of an arrangement with your card issuer to lower your interest rate. · Your protections under the Servicemembers Civil Relief Act (SCRA), if applicable, expire.
Lowering your credit card interest rate
If your credit card company increased your interest rate after giving you a 45-day advanced notice, it generally must review and re-evaluate the interest rate for your account at least every six months.
The card issuer may – and in some circumstances must – compare the rate you’re being charged with the rate the card issuer would charge you today if you applied for a new card. If your rate is higher than what you would be charged as a new customer, the card issuer must reduce your rate. However, this rate will not necessarily be as low as your original rate.
If your rate increased because of certain factors, including being late on a payment, the card issuer may consider whether the factors that led the increase still apply.
For example, you may also be able to lower your interest rate by consistently making your payments on time. If your rate increased because you were more than 60 days late in making a payment, the card issuer must reinstate your old interest rate if you make six consecutive on-time payments of your minimum balance after the effective date of the increase.
Contact your card issuer if you believe your interest rate was increased in error.
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