Layaway

Layaway is a type of agreement between a retailer and a consumer in which the consumer pays a deposit to reserve an item, which the consumer holds till it’s paid in full. The customer has to commit a period of time during which he will pay the full amount. If the customer fails to money is refunded after deducting a small fee.

Why should I be aware of this?

• Layaway used to be a common purchase practice for big ticket items as consumers were earlier not readily offered credit for purchase. Though the practice is still followed the rise of credit cards and store credit has made layaway somewhat obscure.
• As the retailer holds the item for the customer, and agrees not to see it, the customer is assured that it will be available later. As a typical layaway plan has minimal or no fees, it becomes less expensive than carrying a balance on a credit card.
• Today, with the financial crisis worsening, the layaway sign has crept back into consumption culture.

All about layaway

Layaway plans first became popular during the Great Depression but as consumers got more and more access to credit cards, its popularity diminished. It is, however, re- emerging as a purchasing strategy as credit with the economic downturn setting in.

While layaway plans do not charge interest, it is important to be aware of any and all associated fees.

Procedure

Layaway plan was traditionally used to make major purchases such as jewelry and furniture. Here's how it works:

• Select item and pay a layaway deposit or fee (ranging from a percentage of the item price to a flat fee)
• Decide on a payment schedule over a period of weeks or months
• Pay the remaining balance in installments over the layaway period
• After making the final payment, collect the item or have it delivered
• It is important to know the store’s policy in the event of missing payment deadlines, canceling the layaway, or restocking products.

Advantages

• Forced saving: Layaway is like a saving plan for the item you want to buy. Only the money has to go for the purchase of the chosen item and can't be used somewhere else. Your monthly layaway payments gets you into the habit of saving.
• Price remains fixed: Layaway plans also mean that you keep the price of the item you are buying fixed. Even if you take six months to a year to pay, you will not have to pay a higher price even if the price has actually gone up during the period.
• Better than credit cards: Layaway is better than using a credit card as the interest rates of credit cards are so high that you could very easily pay an extra 20% of the item's cost over the time it takes you to pay off the credit card balance. Layaway helps you eliminate that extra cost.

Disadvantages

There are, however, certain limitations of layaway programs. Certain items, such as computers, food and liquids may not be available through layaway plans. In addition, the store offering the layaway plan could go bankrupt, which would put the customer in a difficult position if they cannot afford to pay off their purchases immediately.

What can I do?

• When you use a layaway plan, you pay in full through installments before getting the merchandise.
• Ask the seller how much time you will have to pay for the item; when payments are due; what minimum payment is required; and what charges, if any, are added to the purchase price.
• Ask about the store's refund policy before you buy. If possible, get it in writing.
• Ask the seller to identify your merchandise in writing to ensure that you will receive the exact item you are purchasing.
• Keep a record of your payments.

90 degrees

Due to an economic recession, declining consumer spending, and concerns over the availability of credit during the financial crisis of 2008, some retailers began to offer layaway during the holiday shopping period after having discontinued the service in prior years. It was presented as a more financially sensible alternative to buying on credit.

References:

• What is Layaway?
• The Last Temptation of Plastic
• Benefits of Layaway Plans with Budgeting