How Does Layaway Work?
What Is Layaway?
Layaway plans are a way for customers to pay for purchases in installments. They were developed by retailers as a service to their customers who cannot always afford to pay for large purchases all at once. With a layaway plan, the customer picks out the item or items he wants to purchase and pays a percentage of the total cost as a down payment. The customer agrees to make weekly or bi-weekly installment payments until the purchase is paid in full. The merchant removes the items from the selling floor so that others can't purchase them, but the customer can't take possession of the items until the purchase is paid in full. If the customer fails to make payments on time or cancels the layaway plan, the merchandise is returned to the selling floor and the customer can claim a refund of his original deposit and any payments made, minus any fees charged by the store.
How Do Layaway Plans Benefit Customers?
A layaway plan makes it easy for a customer to make larger purchases. A regular installment payment can be fit into the household budget. Unlike credit cards, customers who use layaway plans pay no interest fees because they are not borrowing money to pay for purchases. Layaway plans discourage impulse spending because the customer can't take the purchase home until it is paid in full. Layaway helps encourage discipline and saving for a goal. In addition, using a layaway plan lets a customer "reserve" a purchase when the item is available, or when it is at a special sale price.
Disadvantages of Layaway Plans
One disadvantage is that if you had deposited your weekly installment payments in a bank account, instead of toward the layaway purchase, you would be entitled to some interest. If you use a layaway plan for a purchase, you'll be deprived of those interest earnings. If an item in your layaway purchase is offered at a reduced price after you make your layaway agreement, you may not be able to take advantage of the savings. Some merchants may charge you a cancellation fee in addition to the layaway fee if you cancel your layaway.
What Are the Costs of Using Layaway?
The cost of using a layaway budget plan varies depending on the merchant offering the plan. Most retailers charge a layaway fee to cover their administration expenses. Some retailers offer layaway plans with a flat fee, meaning that you'll pay the same amount no matter the amount of your purchase. Other retailers charge a percentage of the purchase price as a layaway fee. Rarely, a retailer may offer free layaway as a promotion. In addition, some retailers may charge a cancellation or restocking fee if a customer does not make her installment payments or fails to retrieve her layaway purchases.
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