Definition
Layaway is a purchasing method where a buyer places a deposit on an item to “lay it away” for later pick-up when they are financially prepared to pay off the remaining balance. The store holds onto the item, ensuring the buyer can gradually make payments until the full amount is paid, usually without interest. This system primarily assists consumers who cannot afford to buy an item immediately but can pay over time.
Key Takeaways
- Layaway is a purchasing method where a consumer can place a deposit on an item to “lay it away” for later pick-up when they are financially ready to pay off the balance.
- Layaway plans offer consumers the ability to own a product by making smaller payments over time, without any need for a credit check, thereby making it more readily accessible to a wider number of people.
- However, it’s important to read the retailer’s layaway policy carefully to understand if any service or cancellation fees are associated. Unlike credit card purchases, layaway programs do not usually involve interest charges, but missing the payment deadline could result in cancellation of the plan and loss of the deposit.
Importance
Layaway is an important financial term as it offers a purchasing method that assists consumers who may not be able to afford an item outright, or who want to secure a high-demand item.
It allows them to reserve a product by paying a deposit or a portion of the item’s price and then paying off the remaining balance in a predefined timeline without incurring interest or credit penalties, as would happen with a credit card.
This method encourages financial responsibility, budget management, and disciplined spending, and often serves as a form of saving because the consumer must finish their payments before taking possession of the item.
Thus, layaway can be a valuable financial tool for many people.
Explanation
Layaway is a purchasing method that helps consumers afford goods without needing to pay the full cost upfront, complementing their financial planning process. A layaway plan allows a consumer to choose an item they want to buy and reserve it with the retailer. Instead of taking the item home and accumulating potential debt from a loan or credit card purchase, they instead make a series of smaller payments over a set period of time.
Once the customer has fully paid for the item, they can then take it home with them. As such, layaway serves as a budget-friendly and disciplined approach to big-ticket purchases, ensuring that the buyer does not overextend their credit. Primarily, layaway can be used to secure items that one cannot afford to buy outright immediately.
Layaway programs are especially popular during holiday seasons, where buyers are planning to buy expensive gifts but may not have sufficient funds available at one time. It also offers an alternative to people who prefer not to use or do not qualify for credit cards. Typically, the retailer will set the payment plan terms including duration and payment frequency which varies from weekly to monthly.
While this purchasing strategy has somewhat fallen out of favor due to the rise of credit cards and online shopping, it is still an option at many retailers and can be a valuable financial tool for disciplined shoppers.
Examples of Layaway
Walmart Layaway: A well-known example of layaway services can be found in Walmart. During certain times of the year, most notably around the holiday season, the store offers customers the option to put certain items on layaway. This means that instead of paying for the item in full at the time of purchase, customers can make a small down payment and then pay off the balance over a specified period of time.
T.J. Maxx Layaway: T.J. Maxx, a major department store chain, offers layaway for certain eligible items. Customers can choose this option to reserve an item they want, make a small down payment, and then make regular payments over a set period of time.
Burlington Coat Factory Layaway: Burlington Coat Factory is another retailer that offers layaway services. The process allows customers to select items they want, make a 20% initial payment, and spread the remaining payment out over several weeks. It is a method particularly popular among customers during holiday seasons or for larger purchases, such as furniture for their homes.
Layaway FAQ
What is Layaway?
Layaway is a purchasing method where a consumer places a deposit on an item to “lay it away” for later pick-up when they are financially positioned to pay off the balance. Some stores provide it as an alternative to using credit for customers who do not wish to incur debt.
How does Layaway work?
When you find an item you want, you bring it to the store’s layaway desk. You’ll typically have to pay a deposit, around 10 to 20% of the item’s cost, or a flat fee. Over a period of several weeks to a few months, you’ll pay off the rest in installments.
Does every store offer Layaway?
No, not every store offers layaway. It’s primarily offered by big-box stores, like Walmart or Sears, and some department stores. It’s a good idea to check a store’s layaway policy online before you shop.
Are there any fees associated with Layaway?
Yes, some stores charge service fees for layaway plans. These can range from a few dollars to a percentage of the item’s total cost. There might also be a cancellation fee if you decide not to purchase the item. It’s important to understand all of the potential costs before you put an item on layaway.
What happens if I miss a Layaway payment?
If you miss a payment, it is possible that the store could return your item back to inventory. You could lose the item and the payments you have made so far, and may also have to pay a penalty fee. The specifics depend on the store’s layaway policy.
Related Entrepreneurship Terms
- Down Payment
- Interest Rate
- Installment Plan
- Final Payment
- Cancellation Fee
Sources for More Information
- Investopedia: This website provides reliable and comprehensible information about a vast range of financial concepts, including layaway.
- NerdWallet: This site offers insight into personal finance and how to make the best money decisions, including information on layaway plans and their effectiveness.
- Consumer Financial Protection Bureau: This government website provides information on consumer protection in relation to various financial topics, such as layaway plans.
- The Motley Fool: A website that offers a broad coverage of financial topics, including investing, retirement planning, personal finance, etc. It also provides information about layaway.
