What Is Layaway?
Layaway is a retail purchasing method that allows consumers to reserve an item by making a down payment. The retailer holds the item until the consumer pays the remaining balance in installments, after which the consumer can take possession of it. This method has been particularly beneficial for shoppers with limited disposable income, providing a responsible way to manage purchasing without falling into debt.
Key Takeaways:
- Layaway Definition: A deposit is made on merchandise, which is then "laid away" until the consumer completes their payments.
- Target Audience: Layaway programs cater to shoppers with constrained budgets, enabling them to plan their purchases over time.
- Historical Roots: Established during the Great Depression, layaway saw a decline with the rise of credit cards in the 1980s.
How Layaway Works
Layaway is designed for consumers who may struggle to afford larger upfront purchases. Typically, a fee may apply, as the retailer must store the item until all payments are completed.
- Benefits for Consumers: It allows individuals with low or no credit to secure items without the risk of high-interest debt.
- Policy on Defaults: Should a customer fail to complete the transaction, the item returns to the shelf, and policies on refunding the customer may vary—from full refunds to store credits or fees subtracted from the purchase price.
Online Layaway
In the digital age, online layaway programs have emerged, allowing consumers to lock in purchases via scheduled bank deductions. This opens up access to more expensive items without overwhelming storage of physical inventory at retail locations.
Layaway vs. Credit Cards
Both layaway and credit cards enable consumers to purchase items they currently cannot afford, but there are clear distinctions:
- Immediate Possession: With credit cards, the item can be taken home right away, while layaway requires full payment before pickup.
- Interest Rates: Layaway plans typically do not accrue interest, whereas credit cards can lead to significant debt if not managed carefully.
- Impact on Credit Score: Defaulting on a layaway plan won't affect credit scores, while credit card mismanagement can substantially damage one's credit rating.
For individuals who can pay off their credit card balances promptly, credit offerings can be advantageous, allowing them to enjoy rewards and build a credit history. Conversely, for those who struggle with credit or prefer to avoid interest payments, layaway provides an appealing alternative.
Historical Background of Layaway
Layaway originated during the Great Depression as families sought means to purchase essentials without flourishing credit options. While it thrived for many decades, consumer preferences shifted with the introduction of credit cards in the 1980s.
In response to the financial strains caused by the Great Recession in 2008, Walmart reinstated its layaway program briefly, reflecting changing consumer financing needs. Eventually, in 2021, they pivoted again, adopting a "buy now, pay later" (BNPL) model, which has gained traction in today's digital marketplace.
Contemporary Layaway Programs
Despite the rise of alternative financing options, layaway remains alive today, albeit with fewer participants in the marketplace. Notable retailers still offering layaway options include:
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Army & Air Force Exchange: Offers various layaway durations for clothing, footwear, and fine jewelry, with specific down payment requirements.
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Baby Depot and Burlington Coat Factory: Provides a 30-day layaway with varying down payment amounts based on total purchase costs.
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Big Lots: Features a Price Hold program maintaining pricing on out-of-stock items and a Progressive Leasing program that allows immediate possession under leasing terms.
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Hallmark Gold Crown: Associates offer a temporary layaway from July to December with a maximum layaway duration of 90 days.
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Kmart and Sears: Continue offering layaway plans online and in-store, though their continued viability has been jeopardized by financial struggles.
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Marshalls: Has a program called eLayaway, working through Vivaloan, promoting loans with same-day approval for individuals, highlighting accessibility even for those with lower credit ratings.
Conclusion
What Is a Layaway Plan?
In essence, a layaway plan is a flexible purchasing option that allows consumers to reserve and subsequently pay for items over time without accruing debt.
What Are the Origins of Layaway?
Originating from the financial adversities faced during the Great Depression, layaway has adapted to the changing landscape of consumer finance. Although its popularity fluctuates, the program's fundamental ideals of saving and financial prudence continue to resonate in personal finance discussions today. As new monetary solutions mature, it remains vital to assess individual needs when choosing between layaway and alternate options like BNPL or credit cards.