In recent years, layaway, the old-fashioned financing option, has made a remarkable comeback fueled by the financial slump. Layaway can make purchases more affordable, but they do come with some fees, which increase if the layaway contract is canceled.
But unlike credit cards, the souped-up layaway programs are free of finance charges, interest and late fees. So if you don't have the cash on hand to pay the full price, layaway has increasingly become an option as national retailers have reinstated or introduced and expanded their programs.
But layaway can have its drawbacks. If you purchase an item through a layaway plan that charges fees, you'll end up paying more for that item than you would if you simply waited to make your purchase until you'd saved enough to pay for it. And even if you don't pay a fee, you're essentially still giving the store an interest-free loan until your purchase is paid off.
Consider this option a sort of reverse layaway plan: Instead of buying the item and paying for it in installments, simply set aside however much money you'd pay in those layaway installments at regular intervals over the next two to three months until you've got enough to go out and pay cash for it. Nothing will be cheaper than that.
Yet with the economy sputtering and money still tight for many shoppers, layaway is enjoying a resurgence among shoppers who still yearn to buy now and pay later. Layaway has become a viable alternative for shoppers who don't have credit cards or are trying to use them less.
The financing option, which is offered year round at various retailers from clothing to furniture stores, has grown in popularity with a greater number of shoppers each holiday season opting for layaway plans. These plans typically allow four to 12 weeks to complete payments. TJ Maxx and Marshall's are among the list of area stores that offer layaway.
Computers, video game systems, flat-screen TVs and jewelry are among the hot gifts usually set aside for the program. Shoppers make a down payment and, depending on the store, perhaps a service fee, while the items are held aside at the store as incremental payments are made. Websites also have emerged and gained popularity, with numerous retailers offering installment payment plans for a wide selection of merchandise.
This year, the resurgence could reach new heights with national retailers' promotions. Toys R Us is waiving its $5 service fee for in-store layaway items and it's lifting its minimum purchase requirement until Oct. 31. After that, there will be a $5 service fee.
At Kmart and Sears, layaway customers won't have to pay the $5 or $10 initiation fee for orders started in-store and online before Nov. 17. Walmart isn't doing away with its layaway fee, but it is cutting it to $5 from $15 and extending its payment time frame from 60 to 90 days. The nation's largest retailer holiday layaway program is no longer open to just electronics and toys. It's been expanded this year to include small appliances and other items.
While some retailers have temporarily eliminated the major hang-up of layaway contracts, others are still charging them. For example, Best Buy charges a service fee of 5 percent of the total value of orders.
There are cancellation costs too. It could result in the loss of the initiation fee and come with fees from $10 to 10 percent of the total layaway. Layaway items are usually not eligible for price adjustments and don't apply to clearance items. Experts warn consumers to be wary of exorbitant fees that exceed interest charges on credit cards and essentially make layaway plans expensive.
Typically, service fees are $5 to $10, and 10 to 20 percent of the purchase price is required upfront. Payment schedules can be flexible or fixed. At Sears and Kmart, payments must be made in a store or online every two weeks, but at Burlington Coat Factory, you can pay as you please within the 60-day period.
The Federal Trade Commission recommends knowing the terms of your layaway agreement and getting the store's refund policy in writing when you buy.
The fine print on layaway plans
Several major retailers have made changes to their layaway programs heading into the holiday shopping season. Here's a rundown:
. Walmart - Reduced fee from $15 to $5. Starting program a month earlier, beginning on Sept. 16 and running through Dec. 14. Once the item is paid for, Walmart will give the consumer a $5 gift card. All items must cost at least $15. Total layaway purchase must be at least $50.
. Toys R Us - Layaway program is open now and won't charge a fee on items ordered by Oct. 31. After that, a $5 service fee will apply. Consumers must make a 20 percent down payment and pay 50 percent within 45 days. Item must be paid in full by Dec. 16.
Babies-R-Us has the same layaway policy.
. Kmart and Sears - ?No service fee on layaway purchases, but a $10 fee will apply if a layaway order is canceled. Requires an initial payment of $15 or 10 percent of the item's purchase price. Repayment period runs from eight to 12 weeks, with biweekly payments required. The Kmart program is running now. Sears is expected to launch its layaway promotion in October.
. T.J. Maxx and Marshall's - Offers a 30-day layaway program. Requires a down payment of 10 percent of the item's cost, or $10, plus a $5 service fee. Charges a $5 cancellation fee.
. Best Buy - Charges a 5 percent service fee. Requires upfront payment equal to 25 percent of the purchase price and subsequent payments every two weeks over an eight to 12 week repayment period. Item must cost at least $250. Not available at Western New York stores.