Simone Lawson
Layaway is a payment plan that allows consumers to put down a deposit on an item and pay the rest in instalments. The item is then reserved for the consumer until they have paid in full. Layaway plans first appeared after the Great Depression of the 1930s, motivated by the financial hardship that many people were experiencing. They have seen a resurgence in recent years due to the financial difficulties of the economy and the constraints on consumer credit. While putting an item on layaway does not constitute a sale, it is a purchase agreement that guarantees the consumer will receive the item once they have paid in full.
| Characteristics | Values |
|---|---|
| First appeared | After the Great Depression in the 1930s |
| Popularity | Widespread until the 1980s when credit cards became more common |
| Current usage | Less common, but still offered by some large retailers |
| How it works | Customer pays a deposit, then the remainder in instalments |
| When the item is received | Only after the final payment is made |
| Interest | No interest is charged |
| Fees | May include late fees, cancellation fees, restocking fees, service fees |
| Consumer rights | Varies by state; some federal laws grant protection |
| Typical seasons | Christmas and other holidays |
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What You'll Learn
Layaway plans are a form of purchase agreement
The history of layaway plans can be traced back to the Great Depression of the 1930s, when they provided financial relief to many people facing economic hardship. However, their popularity declined in the 1980s with the widespread adoption of credit cards. In recent years, layaway plans have experienced a resurgence due to economic downturns and increased financial constraints on consumers.
The process of a layaway plan typically involves the customer selecting items they wish to purchase and bringing them to the layaway or customer service department. The retailer then requires a deposit, which can be a specific percentage of the full price or a predetermined amount. The items are then set aside by the retailer, either removed from the sales floor or marked as "sold". The customer makes regular installment payments until the final payment is made, at which point they receive the items.
It is important to note that layaway plans may have associated fees, such as late payment penalties, cancellation fees, and restocking fees. Additionally, there may be specific state and federal consumer protection laws that apply to layaway plans, such as the Federal Trade Commission Act (FTCA) and the Truth in Lending Act (TILA). These laws help protect consumers from unfair or deceptive practices and ensure transparency in the terms of the layaway agreement.
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Layaway plans don't charge interest
Layaway plans, which first appeared after the Great Depression in the 1930s, allow consumers to pay for a large purchase over time without taking on debt. They are a purchase agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item. The consumer only takes home the item after they have fully paid for it.
Layaway plans usually don't charge interest because the customer doesn't borrow money to get the item sooner. Instead of taking the item home and then repaying the debt on a regular schedule, as with most instalment plans or hire purchases, the layaway customer does not receive the item until it is completely paid for.
However, it's important to note that some layaway plans may charge interest, and it's always a good idea to read the fine print. For example, some plans may charge interest if you pay layaway instalments with a credit card. In this case, the interest would come from your card rather than the seller's layaway plan. Additionally, while layaway plans don't charge interest, they may charge various fees, such as service, restocking, and cancellation fees, which can add up.
Layaway plans can be a helpful alternative to credit cards, which often come with high-interest rates that can lead to debt. They are also more accessible than credit cards because they don't require a credit check. However, it's worth noting that layaway plans are less commonly used today due to the widespread use of credit cards.
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Layaway plans are commonly used during the Christmas season
Layaway plans are a time-honoured tradition, allowing people to pay for big-ticket items over time. The plans first appeared after the Great Depression of the 1930s, motivated by the financial hardship many people were experiencing. They remained popular until the 1980s when credit cards became more widely used. However, layaway plans have made a comeback since the Great Recession of 2008, and they are commonly used during the Christmas season.
Many stores offer layaway during the Christmas season, and it has become a tradition for some individuals to make holiday layaway donations. A 2021 survey revealed that one-third of customers intended to use layaway for Christmas shopping. This shows how important budget-friendly payment plans are when people shop for special occasions.
Layaway plans are a great budgeting tool and a means to avoid debt. They allow consumers to reserve in-demand items and pay for them in instalments without incurring debt. Planning ahead by utilising layaway can help manage budgets, avoid interest fees, secure desired items, and spread out costs. For example, if you enter a 12-week layaway agreement on a Christmas present, you'll need to place an item on layaway in early September at the latest.
However, it's important to note that layaway plans usually come with strict payment terms. If you miss an instalment, you could lose your item. Additionally, there may be cancellation and restocking fees associated with layaway plans. These fees can make layaway an impractical option for financing smaller purchases.
Overall, layaway plans can be a helpful way to budget for Christmas gifts, but it's important to carefully consider the terms and conditions before committing to a plan.
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Layaway plans require a deposit and regular instalments
Layaway plans have been available since the 1930s, when they were motivated by the financial hardship of the Great Depression. They allow customers to make a down payment or deposit on an item, which the store then holds for them while they pay the remainder of the price in instalments. Once the item has been paid for in full, the customer can take it home.
The amount of the deposit can vary, with some stores requiring a percentage of the total price and others a set dollar amount. For example, some stores require a 20% down payment, while others require a $10 or 20% down payment, whichever is greater. There may also be a non-refundable service fee, which can range from $5 to $10.
Instalment payments on layaway plans can be made in-store or online, and can be weekly, bi-weekly, or monthly, depending on the retailer. Some stores may require the balance to be paid in full within a set period of time rather than in instalments. It's important to note that the specific terms of a layaway plan can vary depending on the retailer, so it's essential to read the layaway policy carefully before signing any agreements.
Layaway plans generally don't charge interest, which can be a significant advantage over credit cards. However, there may be other fees associated with layaway plans, such as storage fees or cancellation fees. It's important to understand all the costs and rules involved in a layaway plan before signing up.
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Layaway plans are ideal for low-income consumers
Layaway plans are a purchasing method that allows consumers to place a deposit on an item and pay the remaining balance in weekly or monthly instalments. They are ideal for low-income consumers who may not have access to credit cards or in-store purchasing, as well as those who have bad credit.
The main advantage of layaway plans for low-income consumers is that they do not charge interest, unlike credit cards, which can have interest rates ranging from 15 to 25% or even higher. This makes layaway a more cost-effective choice for low-income individuals or families who need to save up for essential items like winter coats, school supplies, or holiday gifts. For example, a customer could use layaway to purchase school supplies ahead of the academic year, spreading out the cost of backpacks, shoes, and stationery over several weeks.
Another benefit of layaway plans for low-income consumers is that they do not affect your credit score, even if you miss a payment. This is because layaway is not a loan and the store will not lend you the item until it is fully paid for. As a result, you don’t have to fill out a credit application or have your credit score checked to be eligible for a layaway plan.
Layaway plans also allow consumers to plan their spending by allocating funds over several weeks or months, rather than making a single large payment that could strain their budget. This helps low-income consumers avoid debt while still acquiring the products they need and can also aid in setting and achieving financial goals.
Finally, layaway plans are often offered by retailers during the Christmas season, which can be a financially challenging time for low-income families. By using a layaway plan, consumers can take advantage of holiday sales and discounts without having to pay the full cost upfront.
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Frequently asked questions
A layaway plan is a payment plan that allows a consumer to put down a deposit on an item to reserve it for future pickup. The item is then paid for in instalments until the full amount is paid, at which point the consumer receives the item.
No, putting something on layaway does not constitute a sale. A sale only occurs once the item has been paid for in full and the consumer takes possession of the item.
Layaway plans are ideal for low-income consumers who are ineligible for credit cards or in-store purchasing, as well as those who have bad credit. They also do not charge interest, unlike credit cards.
