How to Pick the Best Layaway Plan

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Five years after doing away with layaway, Walmart has brought it back for the holidays. The retail giant has announced the news on their website, their Facebook page, and even TV – and they’re not alone.

As the recession drags on, Walmart joins big names like Sears and Toys R Us, which have recently revived layaway or reminded consumers that they offer the service. As MSNBC recently put it, “With massive unemployment and consumers still struggling to manage their daily costs, discount retailers have to pull out all the stops to win over new customers, or even retain the ones they have.”

Despite the economy, some experts still warn against layaway. Last month, Cornell University professor Louis Hyman called the financing option “decidedly worse than most credit cards” in a New York Times op-ed:

Imagine a mother going to Wal-Mart on Oct. 17 and buying $100 worth of Christmas toys. She makes a down payment of $10 and pays a $5 service fee. Over the next two months she pays off the rest. In effect, she is paying $5 in interest for a $90 loan for two months: the equivalent of a credit card with a 44 percent annual percentage rate, a level most of us would consider predatory.

By comparison, even a card with an 18 percent A.P.R. would charge only half as much interest – and she could take those presents home the same day.

Ouch!

But for some consumers, like those who don’t have access to credit, layaway may make sense – especially when it means putting a smile on a loved one’s face during the holidays. If you’re considering this option, a little homework can save you a lot of trouble…

Step 1: Do the math

In an ideal world, nobody would pay either interest or a layaway fee to shop for the holidays, because we’d all use cash. Unfortunately, this isn’t an ideal world, so if you don’t have the cash, you’ll have to consider your options. If you have credit cards, compare the interest you’ll pay (this requires knowing both the rate on your card and how long you’ll take to pay it off) to layaway service fees. If the interest you’ll pay to your card company is less than the service fee to a store, use your credit card. If the interest would be greater than the service fee, layaway makes more sense.

Step 2: Pick the right store

First, go online to find out whether the stores where you shop offer layaway. While the service has become more common since the recession started, not all stores offer it. Walmart and Kmart do, for example, but competitor Target doesn’t. Sears does but JCPenney doesn’t.

Then consider whether you plan to shop in a brick-and-mortar store or online. Some stores, like Best Buy and Toys R Us, only offer layaway for in-store purchases.

A cheat sheet

A breakdown of who offers what and for how much…

Babies R Us

  • Eligible items: See the list on their website
  • Down payment: At least 20 percent of the total purchase price
  • Service charge: $5
  • Cancellation fee: $10
  • Available: In stores only

Best Buy

  • Eligible items: All items, but the total purchase price must be at least $250
  • Down payment: 25 percent of total purchase price
  • Service charge: 5 percent of total purchase price
  • Cancellation fee: N/A
  • Available: In stores only

Kmart

  • Eligible items: Most items (if you shop online, look for the words “Available for Layaway” on product pages)
  • Down payment: $15 or 10 percent of the total purchase price (whichever is greater)
  • Service charge: $5
  • Cancellation fee: $10
  • Available: In stores and online

Sears

  • Eligible items: Most items (if you shop online, look for the words “Available for Layaway” on product pages)
  • Down payment: $20 or 20 percent of the total purchase price (whichever is greater)
  • Service charge: $5
  • Cancellation fee: $15
  • Available: In stores and online

Toys R Us

  • Eligible items: See the list on their website
  • Down payment: At least 20 percent of the total purchase price
  • Service charge: $5
  • Cancellation fee: $10
  • Available: In stores only

Walmart

  • Eligible items: Toys, electronics, and jewelry departments
  • Minimum: $50 total purchase, and each individual item must cost at least $15
  • Down payment: 10 percent of total purchase price
  • Service charge: $5
  • Cancellation fee: $10
  • Available: In stores only

For more tips for a smoother holiday shopping season, check out How to Spot the Best Return Policies and visit our Deals page.

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