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Is Layaway Right For You?

This post brought to you by Kmart. All opinions are 100% mine.

kmart bag by alex wiebe on flickr

Recently, several retailers have announced that they've dropped or lowered their layaway fees, including Kmart who now allows free layway. So with that news, I decided to examine layaway and see if it makes good financial sense for me and my family. Here's what I found.

How Layaway Works:

Each retailer has its own specifics, but the general workings of layaway programs work similarly. Here are some of the key points:

1. Down Payment: You pay a down payment to put the item in layaway. At Walmart, it's 10% of the purchase price or $10, whichever is greater. At Kmart, the down payment is $15 or 10%. Best Buy requires a 25% initial down payment.

2. Minimum Purchase Price: Layaway is sometimes limited to specific departments, and usually you have to reach a certain minimum (like $50) before you can put something on layaway.

3. Terms: Terms include how often you must make a payment (at Kmart, it's every 2 weeks), how many payments you must make (at Kmart, it's 4 payments over 8 weeks), and a time limit of when the item must be fully paid for and picked up (at Walmart, final pickup must be made by December 14th or it will be cancelled).

4. Cancellation: Some stores charge a fee or even keep your fee if you can't continue making payments on the item. At Kmart, you pay $10 for cancellation.

5. Layaway Fees: Fees for using the layaway service vary widely from retailer to retailer. For example, at Best Buy, they require a 5% nonrefundable layaway fee. So if your purchase is a $1000 television, you will pay Best Buy $50 for the layaway service, while at Kmart and Toys 'R Us, you can get free layaway. You have to pay applicable layaway fees at the beginning of layaway along with your down payment.

6. Payment: You usually visit the store to make the payment.

7. Pick Up: When you have completed the payments, you can pick up your item at the store where you set up the layaway.

Note: some states have laws governing particulars of layaway, so store policies may vary from state to state.

kmart cart by rob stinnett

When is Layaway right for you?

There are several reasons why consumers might want to take part in a layaway program:

1. You can get in on a great sale even if you don't have all the money for the item yet.

Example: Your family has decided to buy a bigger TV this holiday season, and a big sale is coming up next week. You have saved half the money already, but you still need a couple more months to fully pay for the TV. If you buy it on layaway, you can still take advantage of the big sale but have several months to pay it off before you pick it up.

2. Unlike with credit cards, you don't have to pay hefty monthly finance fees to "borrow" the money from the store for layaway.

Some stores charge a small layaway fee (Walmart charges $5 for layaway), but in the long run, this small fee can be significantly lower than the finance charges on a credit card, particularly if you are buying a more expensive item and you don't have low APRs on your credit cards.

3. Speaking of credit cards, if you don't have one or don't believe in purchasing with credit cards, layaway can provide you with a method for purchasing without use of credit cards.

4. Layaway can help you be disciplined with your money.

If you have a tendency to spend money before you know what you're spending it on, it's a good idea to create a budget (NOT the kind that restricts you — the kind where you pre-decide how you are going to spend each dollar). Layaway can be a great tool for those who need extra help with budgeting discipline. If you decide to buy that big screen TV as part of your family holiday gifts, and you commit to it via a layaway, then you already know where that money is going.

5. With layaway, you don't have to store holiday gifts until you're ready for them (or find somewhere to hide them where your family won't see them).

As a parent of three boys, I am running out of places to a.) store things and b.) hide gifts where my sons can't find them. In layaway, the store keeps the merchandise until you finish paying for it.

kmart store

What are Potential Drawbacks of Layaway?

1. If the price drops later, you might be stuck with the price you paid.

Some retailers, like Kmart, allow you to adjust the price to the sale price if you put the item on layaway within 7 days of the sale. However, layaway has the potential to lock you in to a higher price if prices drop while you are paying off your layaway.

2. If you change your mind, you might lose money.

Find out what your retailer's policy for layaway cancellation is. If you change your mind about the purchase, or can't continue making payments, you could forfeit the money you've paid. Most stores allow you to cancel the layaway, but charge a fee (Kmart charges $10 if you cancel, but you get the rest of your money back),

3. You don't get the item until it's paid for.

The flipside of the storage-issue in point number five above, is that you don't actually get to use the item until your layaway is paid for. So, layaway might not be a great option for a birthday that is coming up next week, for example. And if you are buying a big-ticket item, make sure you do the mental math and think through exactly how long it's going to be before you can pick the item up.

Policies for Layaway by Retailer:

Kmart Free Layaway Grid 09_12.jpg

Kmart: Free layaway, $10 charge for cancellation. You can get a sale price adjustment within 7 days of setting up layaway.

Walmart: $5 charge for layaway. You get a $5 Walmart gift card upon full payment of your layaway.

Toys 'R Us: Free layaway. No other details available on website.

Best Buy: 25% initial down payment, plus a 5% nonrefundable layaway fee. Item(s) must total $250 or more. (Website does not say what happens to your money if you miss a payment, but that merchandise can be returned to store inventory.)

Kmart's Big Layaway Giveaway:

BLG_Logo_Horizontal.jpg (3 documents, 3 total pages)

Thanks to my sponsor Kmart, for encouraging me to find out about layaway and share my findings with you!

Here are some goodies I have my eye on from Kmart:

rescue bots at kmart

Did I say "I" had my eye on? I meant my six year-old son who is obsessed with Transformers. He loves Playskool Rescue Bots, and always has to keep tabs on which Rescue Bots he can get at Kmart.

batcave

My two year-old son is a huge Batman fan. He wants to be Batman when he grows up, and the birthday party theme he chose for he turns 3 is "Batman Saving Doggies." I love Imaginext toys because they are sturdy and well-designed, and allow for open-ended play. This Batcave looks like a fun birthday gift.

Lego Jabba's Palace

And, THIS is what I have my personal eye on. LEGO Star Wars sets, especially this Jabba's Palace set. I sooo want that Jabba the Hutt minfigure.

The Big Layaway Giveaway

Kmart's prepping for the season of giving and to coincide with this time they are launching Kmart's Big Layaway Giveaway. Meaning there is one layaway giveaway per store per week every week from 9/9/12 through 11/17/12*  Now's the time to place those gifts you've been eying on layaway and also get the chance to win some great prizes at Kmart!

* NO PURCHASE NECESSARY.  Ends 11/17/12.  For Official Rules, visit a participating Kmart location or www.kmart.com/layawaygiveaway.

Kmart_Logo_B&W.jpg (3 documents, 3 total pages)

images: alex wiebe, licensed via creative commons; rob stinnett, licensed via creative commons; tom asher, licensed via creative commons

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This post may contain affiliate links or other sponsored material. Opinions are 100% the author's.

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