Layaway. Is It Really a Good Deal?

It is an amazing thing to see this holiday season – the restoration of layaway. Back in 2006 Wal-Mart stopped offering layaway saying that, as most consumers had access to credit cards, it just wasn’t necessary or profitable.

Now they’ve brought it back, but only for big ticket items like electronics, jewelry and some toys. Sears (and Kmart) are back on the layaway scene as well. Sears’ advertisements tout your ability to put anything on layaway. Just pay a $5 fee and 20% down on the items and in eight weeks you can take the merchandise home.

So is layaway really a good deal? Well let’s do some calculations. I found a child’s bike on sale for $99.99. To put that on layaway I would have to pay $10.00 + $5 for the fee.  As long as I make my payments over the next eight weeks, the only extra charge I pay is $5, but that equates to being charged a 44% interest rate. That is pretty high.

However, you are still probably better off than you would be using a credit card. The layaway fee itself is $5.00. If you charge purchases on a credit card and pay it off right away, you may avoid paying any interest. Unfortunately, many people carry a balance on their cards and pay them down slowly. That means you’ll probably pay more than $5.00 in interest charges.

You do need to be smart about buying on layaway though. If you do not finish purchasing the items, you will probably lose your down payment and any upfront fee. You will have paid to receive nothing.  Also, stick to your holiday budget. If an item is not in your price range, don’t buy it just because you can use layaway. The Better Business Bureau has provided some questions you should ask if you are considering using layaway this holiday season. I have listed them below:

• How much time do I have to pay off the item?

• When are the payments due?

• How much do I have to put down?

• Are there any storage or service plan fees?

• What happens if I miss a payment? Are there penalties? Does the item return to inventory?

• Can I get a refund or store credit if I no longer want the item after making a few payments?

• What happens if the item goes on sale after I’ve put it on layaway?

If your finances are very strapped this holiday season, consider alternative gifts like providing someone child care so they can go out or take a relaxing bath, baking goodies, making a mini book from old photographs, or simply enjoying a good meal together. Remember, the best gifts come from the heart – not the pocketbook.