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Using Layaway Wisely

During the holidays, did you notice the resurgence of layaway plans? Yes, that old shopping trend has returned. But before you wax nostalgic and sign a contract for that special purchase, read all the fine print.

Layaway can be a good option if you use it carefully, according to Ron Hatfield, former West Virginia University Extension assistant professor and family financial management specialist.

The popular payment method, which involves paying for an item in installments and not taking it home until the full price is covered, is making its way back into stores—thanks to the current economy.

What is layaway?

According to the Federal Trade Commission,”Layaway purchase plans are designed for people who want to buy products and services without using credit or paying the full price immediately.”

Hatfield said layaway plans can be better because—unlike credit cards—they do not charge interest.

“It makes for a smarter shopper and cuts down on impulse buying,” he said.

Learn the policy

For those low on cash and weary of paying with plastic, layaway may seem like the most appealing way to make purchases. However, it can prove to be a complex system, and customers who take advantage of layaway should be aware of a few things about the payment process.

Hatfield emphasized that it’s important to understand the terms and penalties of any layaway plan before making big decisions. He advised that customers always make inquiries before using a layaway plan.

  • Get each company’s layaway policy in writing.
  • For each company, carefully note:
    • how much time you have to pay for the items
    • when payment due dates occur
    • your minimum payment amount
    • if you will be charged a penalty for missed or late payments
    • refund policy details

Hatfield said not understanding and following the terms of a layaway contract could actually cost shoppers money.“

As long as the customer understands the terms of layaway, I think it’s great,” he said.

Keep a record

When making a layaway purchase, always keep a record of your payments. Not organized enough to file away your receipts? Try relying on an online layaway broker company to set up e-layaway plans.

Hatfield also said that no matter how you choose to pay for gifts and other purchases, establish a budget first and then stay within your budget’s guidelines.

Even after taking multiple precautions, layaway can still pose complications for the buyer. While layaway plans are not governed by federal law, it is still a good idea to become familiar with the laws on deceptive or unfair sales practices, he said.

Interested in learning more about managing your credit, dealing with collection agencies or other financial management topics? Visit the personal finance section of  eXtension.

Reviewed by: Pat Gruber, WVU Extension Service Families and Health
Last Reviewed: September 01, 2014