Retailers roll out layaway plans early for 2015 holidays
Before Labor Day cookouts even started this year, retailers began rolling out holiday layaway plans. Although that may seem absurd to traditionalists, starting early with layaway can help you reduce January credit card debt.
Wal-Mart led the way, offering layaway plans Aug. 28 to help shoppers get a jump on hot toys. "Wal-Mart launched layaway two weeks earlier this year in anticipation of the Star Wars merchandise launch on Sept. 4," spokesman Kory Lundberg says.
Toys R Us also began its holiday layaway on Sept. 4, a week earlier than last year. Other major retailers began offering holiday layaway in September, too.
With layaway, a shopper makes a down payment on merchandise and then pays it off by a certain date or within a certain time frame. Some retailers require payments every two weeks; others, such as Wal-Mart, have no set payment schedule -- you just pay off as much as you want, whenever you want, as long as it's paid off by the deadline.
Shoppers who head to the stores early may be doing their budgets a favor, says Katie Bossler, a financial counselor with GreenPath Debt Solutions in Detroit. "For most of us, there's not that much flexibility in the budget to pay for everything in December," Bossler says. "Waiting until December might mean you put things on credit. ... If you buy something for $100 on credit, you might be paying it off for 10 months and paying more. You're paying it backward."
But with layaway, you pay for the item before you take it home -- paying it forward instead of backward, Bossler says. The fact that you have a hard deadline to meet for paying off the item helps focus your budgeting, too, she says.
If you're considering making purchases on layaway, be sure to read all the fine print. Pay attention to:
For retailers, layaway is all about keeping customers satisfied. "We know customers use layaway for a number of reasons, including to beat the holiday rush by shopping early, ensuring they're getting the hottest holiday items they want of the season without worrying about paying for them all at once," Lundberg says.
Wal-Mart is very good at studying its customers' needs, says Ron Hess, associate professor of marketing in the Mason School of Business at the College of William and Mary in Williamsburg, Virginia. "Does their target market really want and need a layaway plan? The answer for Wal-Mart and a lot of these other discounters is absolutely yes," he says.
Layaway can also help you nab popular items before they run out. Last year, merchandise from the hit movie "Frozen" was in high demand, Hess says. "Getting Elsa or other items from 'Frozen' was impossible," he recalls. "My wife went through all kinds of hoops. Lots of different items are going to be sold out permanently by December. For consumers, it comes down to getting the items they want, and they're afraid they won't have the money."
Not your grandmother's layaway
Layaway plans started in the late 19th century and became popular in the 1920s as a way for people to pay for items such as washers, dryers and refrigerators that were hard to pay off right away, Hess says. Over the following decades, formal layaway plans dwindled in popularity until they came roaring back during the recession, as consumers looked for ways to maintain holiday giving without credit cards.
Even though the recession may be over, many consumers have continued the credit-wary, frugal ways they adopted when times were tight, Hess says. Perennial popular layaway items today include expensive electronics such as big screen TVs and, of course, toys.
Layaway plans have evolved over time, with some stores offering options to pay online and pick up items at another store location. "I was checking out some of the different retailers' policies," Bossler says. "You can do layaway online. It's becoming a 21st century alternative to credit."
And if you're a shopper motivated more by Black Friday sales than early fall shopping, Kmart has you covered. For the second year in a row, Kmart is offering no-money-down holiday layaway through Sunday, Nov. 29. "Thanksgiving and Black Friday shoppers can take advantage of the payment option," says a Kmart representive.
A final reason to use layaway: To help keep gifts a secret from prying eyes at home, Lundberg says. "They can use layaway to store gifts and keep loved ones from finding those gifts in the house before Christmas," he says.
|SELECTED RETAILERS' LAYAWAY PLANS|
|Wal-Mart||Sears||Kmart||Toys R Us|
|Service fee||None.||$5 for an 8-week contract; $10 for a 12-week contract. 12-week contract available only for purchases of at least $400 made in store. 12-week contract not available at all locations. (Fee may be prohibited in certain states.)||$5 for 8-week contract (online and in stores); $10 for 12-week contract (in store only), except where prohibited by law. Purchases of $300 or higher eligible for 12-week contract at certain locations.||None.|
|Eligible items||Electronics, toys, jewelry, small appliances, select sporting goods, infant toys, large furniture, infant furniture and automotive electronics such as speakers and stereos.||Most items.||Most items.||Most items except clothing, food, formula and special orders.|
|Online||In store only.||In store and some online. Eligible online items will be specified as such on the individual product page.||Online and in store.||Must be created in store. Subsequent payments can be made online.|
|Down payment||$10 or 10%, whichever is greater.||No money down in-store. ($0.01 online.)||No money down through Sunday Nov. 29.||10%|
|Minimum purchase amount||$10 per item; $50 total order.||Not specified.||Not specified.||None.|
|Pickup date||Dec. 14. Not available Black Friday.||Pickup in store when purchase is completed; if item is held off-site, schedule a delivery time or pickup date.||Pickup in store when purchase is completed.||Final payment Friday Dec. 11. Items purchased must be picked up in store.|
|Payment schedule||None. Shoppers can pay every day or wait until the last day to make the full payment.||Every 2 weeks. Can be made in store or online.||Every 2 weeks. Can be made in store or online.||Payments must be made every 30 days: 40% within 30 days; 70% within 60 days; and the total price of the order must be paid within 90 days or before the end of the free layaway period Dec. 11, whichever is earlier. Payment may be made online or in store.|
|Cancellation fee||$10 cancellation fee in most states. Down payment and payments made refunded.||$15 cancellation fee for an 8-week contract; $25 for a 12-week contract, except where prohibited by law. You also forfeit service fee.||$10 for 8-week contract; $20 for 12-week contract, and you forfeit service fee.||$10 fee.|
|Grace period||Not applicable.||14 days, then contract is canceled, you're charged a cancellation fee, and item is returned to stock.||7 days, then contract is canceled, you're charged a cancellation fee, and item is returned to stock.||None. If you don't meet payment schedule, contract will be canceled and merchandise returned to stock (some variations by state).|
|Price protection||Will match price if the price of the layaway item is lowered. Will match price of competitor's printed ads.||Customers can receive one price adjustment on advertised items within 7 days of the initial layaway date. No price adjustments allowed on clearance or holiday merchandise.||Customers can receive one price adjustment on advertised items within 7 days of the initial layaway date. No price adjustments allowed on clearance or holiday merchandise.||Will adjust price of layaway item to match sale price within 7 days of final payment.|
|Source: CreditCards.com research, September 2015|
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