While browsing the Sears website, I noticed a section about their layaway program that got me interested to dig deeper into such plans. Layaway plans have their roots in the Great Depression era when cash-strapped consumers were encouraged to shop by taking advantage of such programs. The programs had disappeared for a while but the credit crunch of 2008 has instigated certain stores to offer such a plan – with some even offering online layaway plans.

How does a layaway plan work?

A layaway plan is a means for a consumer to put an item that they wish to purchase on hold and pay the purchase price in installments over a certain period before taking possession of it. The time allowed to make the full payment and take possession of the held item may vary depending on store policy.

For example, Sears’ layaway program may allow 8 or 12 weeks depending on the price of the item placed on hold. It should be noted that not all items sold at a store may be available under a layaway program.

Who would find such a plan useful?

Evidently, a cash-rich consumer or one who is willing to swipe their credit card, whether they can pay off their bill at the end of the billing cycle or not, may not bother with such a plan. However, shoppers who do not have the money set aside for an item, think that the item is a rare one that may never be sold again (say, a limited edition watch) and want to lay their hands on it are the target.

Since there is no interest charged for making periodic payments for the full amount over a few weeks rather than paying the full purchase price at the time of placing it on hold, the shopper will not get into debt and still get their item, albeit at a slightly delayed gratification rate. These programs are not suitable for shoppers who seek instant gratification.

Are there any downsides to such a plan?

A store needs have some upside to offer a layaway plan to shoppers. It arrives in the form of a nominal fee for putting an item on hold (service charge) and special fees when a consumer misses a payment or does not pay off the full amount (cancellation charge). A buyer is essentially entering into a contractual obligation when they sign up for a layaway plan and failing to comply with the terms may result in such fees. Also, some stores may require a down payment in addition to the service charge.

Additionally, if a store accepts a credit card for these periodic payments, it could virtually negate the benefits of a layaway plan for some shoppers. If the consumer cannot pay off their credit card at the end of the billing cycle, they may end up with credit card interest charges plus a fee for placing an item on hold at the store, thereby making the item even more expensive than under the original layaway plan.

Have you purchased an item using a layaway plan? Did you find the plan to be useful? Is there fine print that a consumer needs to be aware of?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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  1. Al on November 7, 2012 at 10:59 am

    One BIG negative to layaway plans (and gift certificates for that matter) is if the retailer goes bankrupt during the period. You lose your goods and whatever money you have contributed to the plan at that point and in return become an unsecured creditor… nice huh?

  2. Subversive on November 7, 2012 at 11:31 am

    Really? There are people who don’t know what a layaway plan is? Really? FT, WHAT ARE YOU DOING TO THIS BLOG?! It used to be awesome.

  3. Goldberg on November 7, 2012 at 3:04 pm

    I agree with Subversive. This blog has moved tremendously away from its core theme.

    How to buy more stuff when you can’t afford it doesn’t really go with how to retire early with a net worth of a million.

  4. Melanie Samson - Cormier on November 7, 2012 at 3:43 pm

    This could be an interesting topic from an analytical standpoint if the article had presented information about who currently uses these programs and why. I’m surprised to hear they still exist. I don’t think the author is suggesting that readers use layaway. However, he could have come down with a firmer judgement and provided a little more food for thought.

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