Refreshing an old skill: Advantages, tips for buying on layaway

University Park, Pa. -- The holiday season and an uncertain economy have many shoppers looking at an old stand-by with new appreciation. A consumer-finance specialist in Penn State's College of Agricultural Sciences explains that the "new" option of layaway offers a useful means for purchasing big- and medium-ticket holiday gifts.

"Layaway seems to be an increasingly popular option around the holidays, especially as retail stores and media talk up its comeback," said Cathy Bowen, associate professor of agricultural and extension education. "It can be the ideal plan for buying gifts when credit isn't a reasonable option -- which is happening more as credit-card companies hike their rates. And it has other advantages, too."

Many businesses have established or revived a layaway service, which allows customers to make an initial deposit on an intended purchase -- usually a percentage of the full price -- and then make scheduled payments until the item is fully paid for. The business holds the item until the buyer completes the payments.

"It's a pay-as-you-go system," Bowen said. "At the end of the payment cycle, the item belongs to you, with no additional financial obligations or fees as you would with credit. And layaway lets you know how much you have paid and still owe for an item. If a family doesn't have the money up front for a big-ticket purchase, they can set a financial goal for themselves by paying for it in increments -- which is much better than paying up to 25 percent interest on top of the purchase price."

Some stores may provide a longer payment period and even discounts for higher-priced items. If the customer cannot make the payments or decides against purchasing the item, any money paid is refunded to the customer (minus a handling fee, in some cases).

Bowen said layaway can be a preferred option if you don't have the space to store holiday presents -- especially large items, such as a computer or television. "It can be like automatic storage for some families, because the item stays at the store until you've made the final payment."

Before they choose to buy on layaway, Bowen urges shoppers to read and understand the store's layaway policies. "Make sure you ask enough questions," she said. "Stores will either have their layaway policy posted or can give you a printed copy of it. You should know if the store charges late-payment fees or restocking fees if you don't purchase the item."

Although shoppers may be able to negotiate layaway policies with small or local retail stores, Bowen noted it may not be possible to negotiate with large stores or national retail chains.

"Since the store owns the item until you make the final payment, also consider the reputation of the seller," she said. "If the store goes out of business while you're paying on your layaway, you may not get a refund."

The Internet has impacted layaway practices, with online layaway payments available as an alternative to paying in-store if you live far away and have concerns about the cost of time and money to get there.

"You can make your decisions up-front, mark deadlines on your calendar, know when payments have been made and possibly pay it off in less time," Bowen said. "However, a possible advantage of paying in-store is that you may be more conscious of making the payments as you go."

She pointed out that the resurgence of layaway could have benefits that extend past the holiday season, as consumers discover a valuable tool for managing their finances. "If credit doesn't get more accessible or cheaper quickly enough, layaway could become more popular throughout the year," she said.

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Last Updated December 10, 2009