Is Layaway a Good Idea?

With the holiday season practically in the rear, our wallets may be breathing a sigh of relief.

Among the gifts, the meals, and the travel, the Christmas season may leave a lot of us in the red and making monthly payments on credit cards, loans, or even layaway items for much longer than we’d like.

Layaway plans have been around for decades. I myself remember picking out items -- like back-to-school clothes -- to bring to the counter at the back of the store where they would live until my mom paid for them in full. I also remember tagging along to the layaway counter so my mom could make a payment, or pick up a relative’s Christmas gift. At the time, I thought layaway was a way to hide Christmas presents during the holiday shopping season.

That’s one way to use it, I suppose. But the original utility of layaway was to allow families to reserve purchases — such as three growing kids’ worth of winter clothing or holiday gifts — that they couldn’t or didn’t want to pay for in full right away. It is a buy-now-pay-later model that rose to popularity in the 1920s and 1930s.

When using layaway, the customer would typically make a down payment on the purchase and perhaps pay a small fee, and then pay off the rest of the purchase in installments, interest free. Although they had to wait until the final payment had been made before taking their purchases home, the layaway agreement offered a great alternative to credit cards for families that had strict month-to-month budgets, or for those that didn’t have a credit card at all. In a sense, it was like the no credit loan of the Great Depression era (but possibly with better loan terms).

As an adult, I had completely forgotten about layaway purchases. Perhaps you had, too. So I wondered: Is layaway still around?

The state of layaway today

Layaway was particularly popular before the widespread use of the credit card. In the 1980s and 1990s, when credit card ownership rose, the popularity of the service started to decline. Credit cards allowed people to take their purchases with them right away, and by the early 2000s, layaway was nearly dead as retailer after retailer stopped offering the service. 

Then the Great Recession hit. People’s pocketbooks got tighter, and layaway started to make a comeback when a handful of stores started offering the service again. For example, Walmart stopped its layaway program in 2006, but reopened it again for the holidays in 2011.

Today, some physical stores still offer traditional layaway programs. If you have a strict monthly budget, or are trying to avoid credit card debt during the holiday season, you may consider checking out some of these programs -- but do note the layaway fees that may accompany your agreement. Options include:

Kmart and Sears

Kmart and Sears, which are owned by the same parent company, offer in-store and online layaway services. However, only select items are eligible for layaway, and there is a limit to your pay-later purchase price ($300 or $400, depending on the store and their layaway policy). 

The stores also charge a service fee — $5 for 8-week and $10 for 12-week payment plans. You also must make a $10 down payment and regular payments every 2 weeks until the entire tab has been settled. If you fail to make payments on time or in full, or if you don’t pick up your items, your layaway purchase may be cancelled and you will have to pay a cancellation fee. This fee is usually 10% of the total price, but can vary, depending on where you live.

Burlington Coat Factory / Baby Depot 

Burlington Coat Factory / Baby Depot offers in-store layaway only, and it’s recommended that you see a customer service associate for more information. Based on the most current online information, Burlington requires a 20% down payment for layaway and charges a $5 service fee. If you can’t hold up your end of the payment plan, you will be charged a $10 (plus tax) cancellation fee.

Walmart

In-store layaway options are available at Walmart during the holiday season (in 2019 it was August 30 through December 9), but they are not offered online. Walmart does not charge a service fee, but it does require a down payment of 20% of the full purchase or $20, whichever is greater. You also have to layaway a minimum of $50 worth of merchandise. 

Walmart appears to offer more flexible payment terms: you can pay whenever you want as long as the purchase is paid in full by the end of the layaway cycle. If you can’t make payments, Walmart keeps your down payment ($20 or 20%) but does not levy additional cancellation fees.

T.J. Maxx 

Select locations offer layaway (check here to see if there is one near you). Visit a customer service associate in store for full details.

GameStop

This store had a holiday layaway season that ended December 11 this year. GameStop did not change any fees, but they did require a down payment of $25. While a press release said the layaway program was scheduled to end earlier this month, the store was still promoting it on their website at the end of December. 

What if I break my layaway contract?

If you’ve made payments toward your merchandise but circumstances change and you can’t finish making your payments, you can usually receive a refund (less fees where applicable), although sometimes the store will refund the money as a store credit. 

You usually don’t have to pay interest on layaway payments, which is a big advantage over alternatives, such as credit cards, which charge average interest rates of 14% to 15% (though frequently higher). This means you won’t end up paying more for items than they are worth (except for the fees of some layaway programs). Layaway also helps prevent people from overspending, which is something that is easy to do with credit cards.

Always make sure you read the fine print and understand the terms, fees, repayment period, and cancellation policy of any store’s layaway program before you enter a contract.

Digital layaway alternatives: pros and cons

With the rise of online shopping, you may have noticed services — from companies such as Affirm, Afterpay, Quadpay, Sezzle, and more — popping up at checkout that offer a buy-now-pay-later option. Many online retailers are partnering with these companies. According to recent reports in the New York Times and CNBC, these services are kind of like layaway for the modern age.

The big difference though, is at the end of the day, these online layaway services are loans. Most offer interest-free payments on a strict schedule, such as 4 payments over 4 months. This works great if you are able to make all of those payments, but if you can’t, fees start accumulating. According to The New York Times article, most companies levy fees of “$7 to $10 per installment,” and some companies also charge interest.

An alternative to higher interest

According to the most recent annual holiday shopping survey by Deloitte, shoppers were expected to spend $1,496 per household on gifts this holiday season. That’s a lot of dough, and not something everyone has laying around, even when they usually keep strict tabs on their finances. 

Sometimes with the influx of spending around the holidays, people are tempted to take out payday loans, especially if credit card spending is not in the cards. This may not be the best option, since the high interest rates and short repayment terms often land borrowers in a debt trap. If you are worrying about how to make ends meet this year, layaway may be a better option -- as long as you can afford the collective purchase price.