What You Need to Know
September has only just begun, but holiday layaway plans are already making the news.
Wal-Mart, the world's largest retailer, recently announced plansto extend its holiday layaway program by a month this year, in addition to tripling its service fee from $5 to $15. "It's not horrible, but it's not fabulous either."
Retailers are increasingly getting in on the layaway game, according to a spokeswoman for the National Retail Federation. Last year, they were even pushing layaway plans with major ad campaigns.
Here's how a typical holiday layaway plan works. First, you choose the item or items that you want to buy for the season. Then,[link widoczny dla zalogowanych], you make a down payment that's normally around 10 percent-20 percent of the total price of the product, plus a service fee. That service fee can vary, but is typically around $5-$15.
Next,[link widoczny dla zalogowanych], you start making payments on the product on a weekly basis until the product is paid off. Here's where it can get tricky. Miss a payment, and the layaway is considered canceled by the retailer and you can get back the money you've paid for that product,[link widoczny dla zalogowanych], but you will normally forfeit the service fee and have to pay a cancellation fee also. Certain states like Ohio and Rhode Island have passed legislation limiting whether or not the retailer can keep the service fee, so make sure you read the fine print on any layaway contract before you sign up to fully understand what happens if you can't pay or just decide you don't want the item.
The other downside to layaway plans is something that many consumers don't think about, Detweiler says.
"By putting stuff on layaway you may pay more -- either because you stop shopping the sales for that item, or because you pay a fee if you don't end up buying it," she says.
Prices on holiday items can vary significantly depending on where and when you shop. By hooking yourself into a layaway program for a TV that costs $450,[link widoczny dla zalogowanych], for example, means that you might miss out on the last-minute sale for that TV that cuts $50 off the purchase price. You sacrifice the flexibility for the convenience of a payment plan, but that may be a deal you're willing to make.
Detweiler says layaway can be helpful for some consumers in that you can use it to space out a payment plan on regular intervals in the run up to Christmas,[link widoczny dla zalogowanych].
"It can help you stay out of debt. You can take down the holiday decorations knowing you won't be faced with a new debt you have to try to pay off," she says.
Is layaway preferable to paying the interest on a credit card? Let's crunch the numbers on that $450 TV as an example. If you were to sign up for the Sears layaway plan for that $450 TV on an eight-week contract, you would pay a $5 service fee and a $91 down payment to start off. Then, you would pay $91 every two weeks for the next eight weeks, totaling $455. So,[link widoczny dla zalogowanych], the "APR" on that plan would be 15 percent, pretty competitive with current credit card APRs.
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