Holiday layaway 101: Don't sacrifice savings for convenience

It's never too early to start holiday shopping, or so say big retailers like Walmart, Toys "R" Us, and Kmart, which have already rolled out layaway programs to lure in early holiday shoppers. In-store layaway — in which a store sets aside an item that a shopper wants to buy and lets them pay for it in installments before they can take it home — may seem old-fashioned in a world where many people have credit cards, but it's aimed at consumers who don't have the cash for big purchases or don't want to run up their credit card bills.

But even if a shopper does have the cash or credit to buy right now, layaway may seem like a good way to stick to a budget: it means spreading big holiday spending out over several months without the interest of a credit card. However, there are some downsides to layaway to consider before signing up — including hidden fees and the potential for missed deals.

Even Free Layaway Comes at a Cost

First of all, most retailers don't offer layaway year-round, Kmart being a major exception. But many stores do offer layaway programs for the holiday season, starting as early as September. Right now, several big names in retail have begun their layaway programs, including Walmart, Toys "R" Us, Sears, and Kmart, with more joining the ranks as the holiday season approaches.

With the economy still in a crunch, the number of stores with layaway options is increasing, and many are offering enticing terms. But shoppers still need to pay attention to the fine print of any layaway program before signing up. This year, many layaway programs won't charge a fee (and if they do, it's likely to be in the $5 range), but don't be fooled by the signs or advertisements proclaiming "free layaway," as there are caveats to both in-store and online layaway.

Terms vary by retailer, but often programs will only allow shoppers to put certain items — or items above a certain price point — on layaway. Shoppers will also be expected to make regular payments on these goods, and most stores ask for a down payment. Missing a payment, deciding you don't want an item, or failing to pick it up on time will likely result in a cancellation fee ranging from $10 to $15, though shoppers should get the rest of their payments back in cash or store credit.

For example, Walmart layaway lets shoppers put aside "electronics, automotive electronics, toys, infant toys, select sporting goods, small appliances, furniture & infant furniture," so long as an item's value is at least $15 (and $50 for the total purchase). The Walmart layaway plan also requires shoppers to pay $10 or 10% (whichever is higher) up-front as a down payment. Shoppers then have to pay their balance in full and pick up purchases by December 15 or the order will be considered canceled and result in a $10 cancellation fee. If a shopper decides to cancel an order for any reason, he will be refunded what he paid thus far, minus the cancellation fee.

Only Use Layaway for Hot, Must-Have Items

Despite any potential benefits, savings-conscious shoppers should be a little wary of layaway; many programs typically don't allow for price adjustments if an item goes on sale after a shopper has put it on layaway. Before you sign up, be sure to ask what happens if the store itself discounts the item later, or if you find a competitor with a better price. Walmart, for example, will price-match competitor ads for layaway items at the point of registering them, but not after the fact.

If a store's layaway program doesn't include price adjustment for sales, then you should consider whether the convenience of securing the item now and paying over time without a credit card is worth missing out on potential future savings. Some super hot, must-have toys, for example, might be worth putting on layaway if they're at risk of selling out before sales hit (and if your child is likely to throw a tantrum on Christmas morning without them). However, if you're considering purchasing anything that will see steep discounts on Black Friday — like TVs, laptops, and even Apple products — then layaway may cause you to miss out on hundreds of dollars worth of savings.

Layaway Is Better Than a Credit Card, But Bad for Deal Shopping

While layaway programs don't involve accruing interest charges the way credit card purchases do, shoppers should always be fully aware of the terms of a store's layaway policy. In some cases, missing a payment or canceling your layaway commitment could turn into a real money sink. That said, even if you do wind up having to walk away from your layaway purchase, it won't impact your credit history like missing a credit card payment would.

Ultimately though, if you don't need the layaway option, then savvy shoppers would be better served skipping the hyped-up holiday commercials and opt for patience; unless an item is at risk of selling out, then there's a good chance that you'll find it on the shelves with at least some sort of discount before Christmas Day.

Readers, what have been your layaway experiences in the past? Do you think it's a useful store program, or is it outdated and costly? Tell us in the comments below.

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Elizabeth Harper is a contributor to Dealnews.com, where this article first appeared: http://dealnews.com/features/Holiday-Layaway-May-Cause-Shoppers-to-Miss-Out-on-Deal-Savings/862389.html