Have you noticed all the signs for layaway programs? In these tough economic times, an old way to buy holiday gifts is making a comeback.
“It may be a quaint idea, but it demonstrates more responsibility in sticking to a budget when you play the layaway game,” said Tod Marks, a senior editor at Consumer Reports.
Of course, layaway never completely disappeared. Sears and Kmart have offered it year-round for more than 40 years. But since 2008, the number of layaway contracts at both stores has more than doubled.
Walmart, which had abandoned layaway in 2006, launched its new layaway program this week for toys, electronics and jewelry.
On its website, Walmart says, “Christmas Layaway Is Easy.” Your down payment is only 10 percent of the total purchase price. There are no finance charges, just a $5 service fee. You make small payments and have until Dec. 16 to make your final payment and pick up the merchandise.
Best Buy is now offering layaway in some states. And Toys “R” Us recently expanded its layaway program to include more products. Other big name retailers with holiday layaway programs include Marshall’s, T.J. Maxx and Burlington Coat Factory. Many small stores also offer layaway. If you’re not sure, ask.
Before credit was so widely available, layaway was the smart way to buy holiday presents. In this economy, layaway makes sense again for both customers and retailers.
“Layaway draws people into the store who may not have thought to shop there,” said Kathy Grannis with the National Retail Federation. “So it’s definitely a benefit to retailers who want to expand their retail base. And I would not be surprised if next year we saw more retailers offering it.”
Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, thinks layaway is a “terrific money management tool” for anyone who wants to avoid the temptation to overspend on holiday gifts.
“Figure out a payment plan that’s right for you,” she advised, “and you’ll have bragging rights over the rest of your friends who charged all of their purchases and then are hit with a large credit card statement in January.”
Layaway programs are not all the same
Layaway sounds simple, but consumer advocate Edgar Dworsky, founder of ConsumerWorld.org, says it’s not.
“These are very structured programs with lots of rules to follow,” Dworsky noted. “And the programs vary from retailer to retailer.”
So you need to compare programs to make sure you choose the one that’s right for you.
For starters, find out what’s eligible. At Sears and Kmart, almost everything can be put on layaway. At other stores, only specific merchandise can be purchased this way. Is layaway available for online purchases? Again, it varies from store to store.
There’s probably a minimum purchase requirement. At Walmart, it’s $50 with no single item costing less than $15. It’s $250 at Best Buy.
To start the layaway transaction you’ll need to make a down payment. Sears requires $20 or 20 percent of the total purchase, whichever is greater, for its 8-week program. Walmart requires 10 percent down.
While there’s no interest, you will pay a non-refundable service fee, which is normally $5 to $10.
There’s also a cancellation fee, which can range from $5 to $25 depending on the program. Find out what actions trigger that fee. And what happens to the money you’ve already paid? At the major retailers you get it back, minus the fee.
At Sears, the layaway plan is automatically canceled seven days after you miss a payment. Toys “R” Us will cancel the contract if you have not paid half the total bill within 45 days. Walmart requires final payment and pickup by Dec. 16.
Other questions to ask: How often must I pay? How can I pay? Some retailers let you pay online, while others make you come to the store. What if the item you put on layaway drops in price? In most cases, you’re out of luck. That’s a big drawback.
And before you race to the store on Black Friday (the day after Thanksgiving) find out if layaway applies to those door buster sale items. At Walmart, layaway is not offered on Black Friday.
Get a copy of the layaway program (you can usually find it online) and read everything, especially the fine print. Once you understand the rules, you should be OK. This is one case where you don’t want any surprises.