What Is Layaway and How Does It Work?

By Jamie Cattanach · May 30, 2023 · 7 minute read

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What Is Layaway and How Does It Work?

Layaway may sound like an old-fashioned concept: It’s the practice of buying an item over time by making installment payments. You receive your purchase once it’s paid in full. Perhaps surprisingly, the practice is still available and can offer real benefits.

Layaway plans can help you make a pricey purchase without relying on credit cards or another expensive form of financing.

However, they also have some drawbacks, like fees which may not be refundable.

If you’re thinking about making a layaway purchase, here are some important factors to keep in mind, plus alternatives that may be worth looking into.

What Is Layaway?

The way layaway works is pretty simple.

First, 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 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.

If, however, the customer makes late payments or cancels the layaway plan entirely, they may be charged a restocking or cancellation fee — and may also forfeit some or all of the money they’ve put toward the purchase already.

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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.

Pros and Cons of Layaway

Like any financial approach or product, there are both benefits and drawbacks to layaway plans.

Pros of Layaway Plans

•   The consumer doesn’t have to go into debt to make a purchase they would otherwise not be able to afford.

•   Layaway plans don’t require a credit check — which also means that the consumer’s credit won’t be affected if they 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 Plans

•   Although they’re generally low, layaway plans do come with associated fees, such as service, restocking, and cancellation fees — and some of these may be non-refundable.

•   If the customer makes late payments or fails to pay in full, they might forfeit some or all of the money they’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.

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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 credit cards became more common later in the 20th century.

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 stores that often offer layaway include:

•   Best Buy

•   Big Lots

•   Burlington Coat Factory

•   Sears

•   Walmart (via Affirm; see more details below)

If you’re unsure whether or not a retailer offers layaway, you can always ask!

Recommended: Online Shopping Trends

When You May Not Want to Use Layaway

Although layaway can be a helpful option when it’s available, particularly for customers with poor credit histories and/or lower incomes, there are some instances where it might not be the best choice.

For starters, buying items that are relatively inexpensive on layaway can make the associated service fees proportionately costlier than they would be on higher-priced purchases.

In addition, if you’re unsure you’ll be able to fulfill the terms of the layaway plan, it might be wise to skip it altogether, since you’ll likely still be responsible for associated fees and may forfeit the money you’ve put toward the purchase upon cancellation or default.

Layaway may also 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.

Fortunately, there are some alternatives to layaway that might work better for your personal needs.

💡 Quick Tip: If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

Alternatives to Layaway

Here are some other ways customers can get their hands on purchases they might not currently be able to afford.

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.

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, whereas 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 or more than 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.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

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.

Looking at how much money is coming in versus going out, then figuring out where cuts can be made and changing buying habits can help consumers save up for the purchases they really need — and want — to make.

Shopping around to find the best deals can also help ensure that a purchase price is as low as possible, regardless of how a customer decides to finance it.

Recommended: Different Types of Budgets

The Takeaway

Layaway plans are designed for consumers who want to make a purchase but may not have all the cash on hand to pay up front.

With layaway, you can pay for an item over a period of weeks or months, then receive it after your final payment.

With layaway there is no credit check or interest involved, which can make these plans more attractive than credit cards.

However, there are typically fees, such as service, restocking and cancellation fees that need to be considered before making the decision to go with layaway.

Better banking is here with up to 4.20% APY on SoFi Checking and Savings.

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