Layaway Programs: The New Plastic
When the credit markets dried up during the recession, layaway programs sprung out of nowhere like a bunch of drought-loving weeds. Layaway allowed you to buy something without credit or interest charges. Suddenly, this thing that was frowned upon started to look pretty good.
The concept is simple; Payments, including a small fee, are made until a desired item is paid in full. Then you can take your purchase home. If you change your mind, the retailer keeps the fee. Only these days, instead of having to skulk around the back of the store at the layaway counter, it’s all available online.
Shopping and managing payments on your computer, and avoiding credit card interest, are true benefits of today’s layaway programs. You’ll even find good reasons to layaway over paying cash. Yet with anything involving money -- as in “your hard-earned” variety -- be sure to look before you leap. Here are tips for getting the most out of layaway plans today.
1. Use the new online programs to help you find the best price
Specialized layaway websites, such as eLayaway, Lay-Away.com, and Youlayaway offer a wide variety of goods from many stores, including everything from diamond rings to snow blowers.
These companies manage the layaway program for other retailers. It’s like shopping at the mall without having to walk from store to store. So while you’re on the computer, take the opportunity to click around for price. Some retailers such as Kmart and Sears manage their own programs online. You really can find just about anything. Some companies even offer layaway on concert tickets, travel and plastic surgery.
2. Use layaway instead of credit cards
With credit card companies charging outrageous interest rates, it’s a sound idea to avoid charging anything to a card. Layaway programs aren’t free, but the fees charged are usually minimal: either a flat rate or a percent of the purchase price. For example, Kmart charges $5 for new layaway contracts. eLayaway charges 1.9 percent of the entire order.
3. Let the cancellation fees eliminate instant gratification
You know yourself; It’s happened before. You walk out of the store with something purchased by swiping plastic. Use layaway to psyche yourself out of such impulse spending. Will you be just as happy with your purchase after six months of payments?
eLayaway charges cancellation fees of either $25 or 10 percent of the price; Whichever is less. Lay-Away.com charges $35. That’s not a huge amount, but concert ticket sellers can have much more stringent terms. You may lose all the money you put down.
4. Layaway can help you budget effectively
Use layaway to help you stick to your guns. You don’t need to bring a lot of cash up front, but will you have the money later? How easy will those payments be every month? Are they up against the line item of a maxed-out credit card? If you’re comfortable going ahead, you can set up some layaway programs to send email reminders or make deductions from your bank to keep you on track.
5. Avoid making layaway payments to a credit card
In a nutshell, charging payments to your credit card just makes no sense. Some retailers allow you to do this but you’ll pay the layaway fees and open yourself up to the risk of those killer interest rates. Just say no!
6. Let layaway convince you to finally open a savings account
What if you were to save the cash in your own interest-bearing savings account? This will give you extra money and the flexibility to change your mind without cancellation fees. Use automatic transfers from your checking account and the money will be socked away without even thinking about it. Paying cash also means you don’t pay service fees. The item you want may even go on sale while you’re waiting.
7. Use layaway programs to hide gifts
Unless you’ve (mistakenly) given the kids access to your email account, your secrets will be safe at the store, no matter how many times the kids ferret around the closets. If you can, use a retailer that charges a flat rate and group your purchases together so you only pay one layaway fee.
8. Buy items before they sell out at the holidays
It happens every year; There’s some hot item you want to buy for someone special and it vanishes before you’ve had a chance to get to the store. Using layaway at the holidays may require more advance planning, but there are lots of benefits. You’ll get your shopping done early, and it will help you stick to your budget.
9. Maybe rebuild your credit
For a flat monthly rate of about $10, eLayaway will remove normal transaction fees and provide information to FICO Expansion Score about your timely payments. The idea targets people with non-existent or "thin" credit histories. There’s potential for building credit-worthiness here, but not all lenders are using the information yet. As credit markets begin to open up, it may become more established.
10. To use layaway effectively, understand the terms
Read all the terms of a layaway program as they vary greatly. Some companies allow you to make the payments yourself. Some require automatic deductions from a checking account. Some allow you to pay off early. Each program may be different. Some purchases come with free shipping and some don’t. If an item is discontinued before you’ve finished paying for it, some companies substitute comparable products, with customer approval. Read the terms carefully!
11. Use layaway as a financial teaching tool
If your child is focused more on stuff and less on value, layaway could be a real eye-opener. It’s one thing to want that video game player; It’s another to pay for it. Layaway has the added bonus of delayed gratification. Don’t forget to help your child do the math so they understand the difference when buying the same thing with a credit and interest. Overall, it’s an excellent lesson for young people that makes dollars and sense.
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