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Layaway may sound like an old-fashioned concept, but it’s still offered by some retailers and can help people afford an item without running up credit card debt.
Layaway allows you to buy an item over time via installment payments. When you’ve paid the full price, you get to take your purchase home. This can be a helpful financing tool in some situations, but also comes with some potential downsides. For example, there may be fees involved, as well as the possibility of forfeiting your payments if you can’t keep up with them. Here are important things to know about layaway.
Key Points
• Layaway allows customers to make installment payments for items held by retailers, enabling them to afford purchases without using credit cards.
• The process involves a down payment, followed by regular payments until the item is fully paid off, at which point it can be collected.
• Advantages of layaway include avoiding debt and interest, while drawbacks may include fees and the risk of forfeiting payments if unable to complete the plan.
• Many retailers, including Amazon, continue to offer layaway options, particularly for higher-priced items like appliances and jewelry.
• Alternatives to layaway include buy-now-pay-later plans, credit cards, budgeting adjustments, or saving in advance for purchases without incurring additional fees.
What Is Layaway?
Layaway means you make a deposit and a retailer holds your item (or lays it away) and collects the rest of the money over time. When paid in full, you collect your purchase.
Here’s a bit more detail on how layaway works.
• The customer chooses an item that’s eligible for layaway and makes whatever down payment the store requires to implement a layaway plan. (This amount varies based on the retailer, and may or may not include a service fee.)
• The customer then makes regular payments over time based on the retailer’s schedule. These payments may be made weekly, biweekly, or monthly. Online layaway plans often let customers buy items according to scheduled deductions from their checking account.
• At the end of the layaway plan period, when the item has been paid for in full, the customer takes their purchase home or receives it in the mail.
One additional point about how layaway works: If the customer makes late payments or cancels the layaway plan entirely, they may be charged a restocking or cancellation fee. They may also forfeit some or all of the money they’ve put toward the purchase already.
Why Use a Layaway Plan?
From the store’s perspective, layaway offers a low-risk way to make sales to those who might not otherwise be able to afford the purchase all at once.
Although the retailer might choose to charge a small fee to cover the item’s being tied up for the length of the layaway, if worse comes to worse and the buyer defaults, they can simply put the item back up on the shelf for sale.
From a buyer’s perspective, the attractiveness of layaway is even more obvious: It allows those who might not otherwise have the financial leverage to make large purchases affordably, over time.
Layaway is unique among financing options in that it often doesn’t involve interest, which means it can often be a more affordable choice than other types of credit or loans.
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Pros and Cons of Layaway
Like any financial approach or product, there are both benefits and drawbacks to layaway plans.
Pros of Layaway
• You don’t have to go into debt to make a purchase you would otherwise not be able to afford. Using layaway can help you avoid charging an item on your credit card, which typically incurs high interest rates.
• Layaway plans don’t require a credit check — which also means that your credit won’t be affected if you can’t pay the plan on time or in full.
• Fees associated with layaway plans are generally low and often don’t include interest.
Cons of Layaway
• Although they’re generally low, layaway plans often do come with associated fees, such as service, restocking, and cancellation fees. These are typically flat fees, however, which could make them proportionately high if you’re purchasing a relatively inexpensive item.
• If you make late payments or fail to pay in full, you might forfeit some or all of the money you’ve already put toward the purchase (though this varies by vendor, so check with the individual retailer you’re considering for full details).
• Repayment terms can be inflexible and it’s up to the vendor to set the repayment schedule.
• Layaway takes time and patience; it’s an example of delayed gratification. It may be less attractive to those who want or need to take home the purchase immediately rather than waiting until it’s been paid in full.
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Stores That Offer Layaway Plans
Layaway was originally offered back in the 1930s as a result of the Great Depression, then began fading away when using credit cards became more common later in the 20th century. However, the popularity of layaway surged again during the Great Recession of 2007-2009.
The history of recessions tells us they do happen over the years, and the popularity of layaway surged again during the Great Recession of 2007-2009.
These days, many retailers still offer both in-store and online layaway, either for the holidays or year-round.
In some cases, you may only be able to implement layaway on certain products — generally more expensive ones, like appliances and jewelry.
Layaway programs come and go, but retailers that currently offer layaway include the following:
• Amazon
• Burlington Coat Factory
• Army & Air Force Exchange Service
• Buckle
• Gabe’s
• Hallmark Gold Crown
If you’re unsure whether or not a retailer offers layaway, you can always ask!
4 Alternatives to Layaway
Here are some other ways customers can get their hands on items they might not be able to buy in a single purchase.
1. Similar Pay-Over-Time Plans
Some retailers, especially for online purchases, offer buy-now-pay-later or pay-over-time programs that are similar to layaway — rather than paying the full price today, you pay small installments over time.
On the plus side, customers can often receive their purchases before the payment plan has been completed.
However, some of these programs, like Affirm (a payment option available at checkout at many online retailers), can involve interest charges, particularly if borrowers are late on their payments or don’t complete the repayment plan in full.
2. Credit Cards
Credit cards are an obvious alternative to layaway plans — and using them, of course, means that the purchase can be taken home right away.
In fact, credit cards are sort of like the opposite of layaway: With layaway, you pay for an item and then receive it; with credit cards, you receive it now and pay for it later.
Of course, using credit cards almost always involves compounding interest charges, often close to 20%, which is nothing to sneeze at.
Since it’s easy to carry a revolving balance while making minimum monthly payments, credit cards can quickly lead to a credit card debt spiral that can be difficult to climb out of.
3. Reconfiguring Your Budget
If being unable to make large purchases is more of a systemic problem than a one-time issue, some budget management may be in order.
You might start by looking at how much money is coming in versus going out, then try to find places where you can cut back on spending. This can help free up funds that you can use to pay for purchases you really need or want in full without requiring layaway.
Recommended: How to Make a Budget in 5 Steps
4. Saving Up for a Purchase
Another option to layaway is to save up in advance until you have enough cash to go ahead and buy the item outright. Let’s say you want to buy a new laptop. You might automate your savings and have $25 transferred from checking on payday to a savings account (ideally, a high-yield savings account). Over time, the savings will build up and interest will accrue.
When you reach the amount needed, ta-da! You can go purchase your new laptop, without paying any interest or other fees related to buying it over time.
The Takeaway
Layaway is a purchasing method where you reserve an item by making a deposit and then pay the remaining balance over time before taking the item home. While this approach can cost less than putting the purchase on your credit card, it’s not necessarily cost-free. Layaway plans often involve various fees, such as service fees, restocking fees, or cancellation fees.
If you’d like to start saving for a purchase, it can be wise to find a bank account that offers low or no fees and a solid interest rate to help your money grow faster.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How does a layaway plan work?
A layaway plan lets you reserve an item by making a small down payment and then paying the remaining balance over time. The store holds the items until it’s fully paid off, at which point you can take it home. Layaway is often interest-free, but some retailers may charge service or cancellation fees. It can be a helpful option for budgeting larger purchases without using credit or paying all at once.
Is it a good idea to buy things on layaway?
Buying on layaway can be a smart choice if you want to avoid credit card interest or don’t qualify for financing. It can help with budgeting by breaking up large purchases into management payments. However, layaway may not be ideal if the store charges high service or cancellation fees. Also, you don’t receive the item until it’s fully paid off, which could be a downside for urgent needs.
What is the difference between an installment plan and a layaway plan?
The key difference lies in ownership. With an installment plan, you typically take the item home immediately and make payments over time, often with interest. With a layaway plan, the store holds the item until you finish paying, and you usually don’t pay interest. Installment plans often involve credit checks, while layaway does not. Each suits different needs: Installment plans provide quicker access, while layaway allow for more controlled, no-credit spending.
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