How Does Layaway Work?

Back in the days before stores had their own credit cards, layaway was a popular option for buying clothes, furnishings, and other household needs. In simple terms, layaway was an interest free purchase plan in which a retailer would "store" your items while you made regular payments over several months. Once the payments were finished, the item was yours to take home.

Layaway stills works pretty much the same way now as it did back then with three important changes.

~ Fewer stores offer layaway. Up until 10-15 years ago, every major department store offered layaway for their customers. As of this writing, only retail giants Sears, Toys R Us, and Kmart have some kind of layaway program. On a smaller scale, Burlington Coat Factory offers layaway as well.

~ Shorter payment terms. When I worked retail some 25 years ago, four month layaways weren't uncommon. These days, the payment terms aren't nearly as long. A two month layaway plan is the average; Burlington Coat Factory does offer a three month plan on baby gear, plus Toys R Us also has a three month layaway program.

~ Not all items are eligible. Gone are the days when everything and anything could be put on layaway. Retailers are now limiting what can be put on layaway; since each store's policy is different, it's best to ask before you shop. Clearance is usually not permitted, nor seasonal items. At Toy's R Us, the layaway option is limited to what I call "Big Ticket" items.

Now that we've covered the changes you can expect, let's dive into how exactly layaway works.

The four step process of putting an item on layaway:
1. Let's say you want to put a $100 electric blanket from Sears or KMart on layaway. A layaway is usually be handled at the cash register where the clerk will assist you in filling out the form and collecting a 20% deposit.

2. 20% on a $100 blanket means that you will pay $20 at the register. $5 of this deposit is kept by Sears as a "set up" fee, the remaining $15 is applied to purchase price leaving a balance of $85 owing on the electric blanket.

3. Over the next 8 weeks, you can make whatever payments you want on the blanket ~ interest free ~ at a schedule that works in your budget. The most affordable option is to make weekly payments of 1/8 of the $85 balance which equals about $10.63 a week. You can also chose to make $21.25 payments every other week, or monthly payments of $42.50. These payments can be made in the store or on-line through the Sears website.

4. At the end of the 8 weeks, the blanket is paid for and the item is free for you to take home. It's really that simple.

Layaway is an affordable option for buying an item when your credit isn't so hot and charging just isn't possible. However, before putting anything on layaway, it's best to research the stores layaway "restock" policy first before going this route. A restock fee is the cost you pay for returning the item back to the store in case you are late on a payment or can't finish out the term of the contract. Restock fees range from 10-20% of the total purchase price depending on the store and the item being returned. If you're not sure that you can follow through with the layaway payment, then perhaps this option won't work for you after all.