4 Min Read | May 8, 2024
What Is Layaway and How Does It Work?
Layaway can be a good way to finance big purchases, but is it the best option? See how layaway works, its pros and cons, and alternatives to consider.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
A layaway plan is an agreement between you and a retailer that you’ll repay an item over time before it becomes yours.
Layaway can sometimes be a useful way to finance large purchases, but it’s only available at certain retailers.
Popular alternatives to layaway include Buy Now Pay Later (BNPL) plans and credit cards.
The old-fashioned concept of layaway has made a comeback, with some retailers today now offering it. Whether you’re a budget-conscious shopper or simply exploring different payment methods, it’s a good idea to familiarize yourself with layaway, how it works, and available alternatives.
What Is Layaway?
You may be surprised to hear that layaway originated during the Great Depression. It was designed to help cash-strapped shoppers still gain access to the goods that they needed.1 While layaway began to fade out during the 1980s, with credit cards becoming more ubiquitous, it’s now experiencing a renaissance, with a handful of select retailers today offering it to their customers.
A layaway plan can allow you to spread out the cost of a purchase over a period of weeks or even months. While layaway is something that certain brick-and-mortar retailers offer, it’s important to note that some online retailers offer layaway as well. Once you make a deposit, the retailer will “lay away” or hold your item and collect the remainder of the money over a period of time in installments. You’ll receive your purchase once you pay for it in full. Here’s a closer look at how layaway usually works:2
- You choose an item that’s eligible for layaway and make a down payment, which will depend on the retailer and might include a service fee.
- Then, you’ll make ongoing payments in installments. You may be asked to agree to a payment schedule.
- After you’ve paid for the item in full, the retailer will give you your item.
Keep in mind that layaway terms vary and depend on the retailer. Also, only select retailers offer layaway plans so it’s a good idea to check first to see if your retailer offers it if you’re interested in this payment option.
Let’s say you have a layaway payment plan. With this plan, you’ll pay a deposit and then make an ongoing series of payments. At the end, you’ll typically make one final payment and receive your item. It usually works like this:
Benefits and Considerations of Layaway
Just like all payment methods, layaway comes with advantages and disadvantages to consider.
Pros of Layaway
- Can pay for an item over time
With layaway, you can spread out the cost of furniture, jewelry, or other large purchases without going into debt. This is a huge plus if you’d like an item but don’t have enough cash to pay for it upfront.
- May qualify with bad credit
Unlike loans and credit cards, many layaway plans do not require credit checks. Layaway may be an option for you, even if you have no credit or bad credit.3
- No interest
Typically, you’ll only pay for the cost of the item and its associated fees. Layaway plans don’t usually come with interest charges, which can accumulate and increase the overall cost of your purchase.4
Cons of Layaway
- Potential fees
Depending on the store, you may be on the hook for service fees, restocking fees, and even cancellation fees. Sometimes, these fees are non-refundable.5
- Lack of flexibility
The retailer may want you to agree to a payment schedule.6
- Must wait for the item
You’ll receive the item after you pay it off over a period of weeks or months. Of course, this can be an issue if it’s something you need immediately.
Alternatives to Layaway
There are a number of alternatives available to layaway today, such as:
- Credit Cards
Credit cards are a popular alternative to layaway. Compared to layaway, which only certain retailers offer, credit cards are much more mainstream. They’re easy to use and accepted widely. If you’re looking to finance a larger purchase, you may want to consider a credit card that has a 0% introductory Annual Percentage Rate (APR) offer. A 0% APR credit card means that you can avoid interest on most purchases for a set period of time, as long as you make at least the minimum payment on time each month. Note that interest will still apply for some transactions including cash advances and balance transfers. You’ll also want to have a plan to pay off the balance (or at least greatly reduce it) before the introductory period ends and the card will revert to its regular interest rate.
- Using Cash Back Rewards for Your Shopping
Some credit cards offer cash back rewards. Once you earn these rewards, you can redeem them for gift cards to select retailers or put the rewards towards online shopping via an online portal.
- Buy Now, Pay Later (BNPL) Plans
Some retailers offer BNPL plans, which allow you to make a purchase and repay it at a future date, oftentimes without interest. They differ from layaway plans in that there are no waiting periods as you pay for the item, meaning you can receive your item sooner.7
Did you know? American Express credit cards allow you to buy now and pay later with Plan It®. Break up your larger purchases into manageable payments. (Terms Apply) To learn more about Plan It, click here.
Frequently Asked Questions
A layaway plan will not impact your credit score in any way, and the retailer will not need to do a hard credit check. If you use one to pay for an item, it won’t hurt or help your credit.8
Layaway plans vary by retailer. However, they’re typically between 30 days and many months.9
With layaway, you use your own funds to cover a purchase. Credit, on the other hand, involves using a lender’s money.10
The Takeaway
Layaway is a payment plan you can use to pay for purchases over time. The retailer will hold your purchases and give them to you once you have paid for them according to the payment schedule. Alternatives to layaway include credit cards and BNPL plans.
1,2,3,4,7 “Buy Now, Pay Later vs. Layaway,” Investopedia
5,6,8,9,10 “Layaway or Credit: Which is Best?,” Experian
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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