Layaway

529 Savings Plan

What is Layaway?

Layaway is a purchasing method in which a consumer places a deposit on an item to “put it aside” for later withdrawal when he is in a financial position to reimburse the balance. Layaway also allows customers to make smaller payments on the product until the purchase is fully paid. A layaway plan ensures that the consumer will get the merchandise they choose once it has been fully paid for.

Understanding Layaway

Layaway works for consumers who have limited disposable income and who are unable to make larger lump sum purchases. There are sometimes associated costs since the seller must keep the item in stock until the payments are completed. With little risk to the seller, a layaway can be easily offered to those with bad credit. If the transaction is not completed, the item is simply returned to the shelf. The customer’s money can either be returned in full, or entirely lost, or returned free of charge.

Layaway programs also benefit retailers by allowing them to offer products to low-income customers as a type of savings plan. Because the customer has already committed to purchasing the product as a layaway, he cannot succumb to the temptation to spend that money elsewhere.

A brief history of Layaway

The advent of layaway occurred during the Great Depression of the 1930s. However, it fell out of favor in the 1980s as the ubiquity of credit cards diminished its usefulness. In September 2006, Wal-Mart discontinued the layaway service in all of its stores, citing lower demand and higher implementation costs.

However, in September 2020, Wal-Mart resumed service, due to new financial difficulties caused by the Great Recession and, subsequently, to increased consumer credit constraints.

During the 2020 holiday season, many retailers advertised their layaway service, offering it free (or actually free) if certain conditions were met. Kmart has continuously provided a layaway in the United States for over 40 years. At one time, it was the only major national discount retailer offering service.

Key points to remember

  • The term “layaway” refers to the retail method in which consumers deposit a deposit on merchandise items – to “set aside” for later collection at a time when they have the necessary funds to pay the balance in full.
  • Layaway programs are generally intended for low-income buyers who may find it difficult to pay for their purchases in one go.
  • Created during the Great Depression of the 1930s, layaway programs declined in the 1980s as the ubiquity of credit cards diminished their usefulness.

Online upload

Online layaway programs allow consumers to purchase items through planned deductions from a checking account. Online layoff simplifies layaway for merchants and consumers, eliminating associated storage and accounting costs.

Layaway items remain stored at the distribution center during the layaway period, rather than taking up valuable retail warehouse space. During the Christmas season, some people traditionally pay layaway purchases from other customers, as a gesture of charity.

[Important: retailers often restrict layaway purchases to more expensive items, such as jewelry and electronic goods; smaller items like toys are typically unavailable for purchase through layaway programs.]

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