Why Layaway Is Bad For Your Family’s Finances

by Hank Coleman

Why layaway is bad for your financesStores’ layaway programs are like state lotteries. They prey on the poorest and most uneducated in our society. Let me clue you in on a little secret. Layaway is great for stores, but it is typically a losing proposition for us consumers. Here’s why layaway is bad and you should consider staying away from layaway programs.

Layaway Is Bad Because You Spend Too Much

When you buy something on layaway, the cost of your purchase is divided into several payments. The full amount does not need to be paid for at the time of purchase. This can lead to overspending. It is easy to buy more than you intended when you do not have to pay for those purchases right then. Layaways have a way of not keeping us honest with ourselves. It is all too often easier for undisciplined consumers to spend more than they can afford when they use a layaway program from a store.

Layaway Has Fees Like A Credit Card

You cannot escape fees whether you pay for your purchases all at once with a credit card or over time through a store’s layaway program. Fees added to the total cost of the items that you put on layaway. It is akin to the monthly interest that you will typically see on a credit card purchase as well. Here is a scary example. Lets suppose you went into a store last month (October) to layaway a $100 toy for Christmas. You put a down payment of $10 on your item and pay a $5 service fee for your layaway. If you pay off your layaway, what you actually did was pay the equivalent to $5 in interest for a $90 loan for two months. That would equate to a 44% annual interest rate if you calculated it at an annual rate.

Backing Out Of A Layaway Will Cost You A Fee

When you buy something on layaway, you can find yourself still making impulse purchases. While you typically have the option of backing out of your purchases even when you buy them on layaway, most stores will require that you pay a fee to do so which will increase your total holiday spending if you are not careful. Of course, avoiding an increase in spending during the holidays is the whole reason that you are using layaway in most cases.

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You Could Run Into Problems If You Don’t Pay

Depending on the store and their policies, you could potentially run into trouble if you miss a payment on your items that are laid away. If you fail to make the payments on time, the money that you have already spent on your items placed on layaway could be lost. Some store may reimburse you for the money spent with store credit or with a gift card, but your item could be gone that you tried to reserve.

There Is A Better Way Than Using Layaway

There is a better way to save for your Christmas or holiday presents though instead of relying on layaway programs. It is the tried and true method of simply saving for your holiday spending ahead of time. You should start saving for next year’s Christmas presents in January. Like baseball managers who say that the MLB World Series is won in May and June and not October, your holiday savings are not something you should start thinking about in the fall. The earlier that you start saving will help you avoid having to use programs such as layaway and credit cards that drain your bank account one fee at a time.

Paying upfront for your total cost is always the best way to go. Layaway programs are everywhere. You can’t enter a national retail store this holiday season without being inundated with propositions for layaway programs. The biggest stores in America have been hitting their programs hard for months now. But, there is a better way to spend your hard earned money next holiday season. Layaway is not the answer.

About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and is currently pursuing his Certified Financial Planner credentials. Email him directly at Hank[at]MoneyQandA.com.

Hank Coleman has written 522 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 17 comments… read them below or add one }

Christian L.

What are the effects of late layaway payments on your credit? Is it reported?

-Christian L. @ Smart Military Money


Hank Coleman


It is not reported to any of the three credit bureaus. There is no effect on your credit score for late or missed layaway payments. You simply may forfeit the item that you put on layaway. You have to check with the store’s policy on late or non-payment.
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Jon @ MoneySmartGuides

Wow!! Layaway programs have changed since I was a kid. I remember buying a tent using the layaway program. I put down some money to hold it, then did chores to earn money and made a payment each week. There were no fees or anything. I guess with tighter budgets, stores have to squeeze profit from everything possible.
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I imagine most layaways work as you’ve stated above, but I put my wife’s wedding ring on “layaway.” I paid them half upfront and half a month later and I wasn’t charged any fees or additional costs. I will admit I probably spent more than I should have (which I would have done even if I paid in full as I would have simply delayed the purchase a month), but other than that I didn’t get hit with any interest/fees.
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Hank Coleman


That sounds like a great deal. I didn’t even realize that jewelry stores had layaway programs.
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Derek - Freeat33

I have never used Layaway before, and don’t think I will after reading this.
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John S @ Frugal Rules

Great points. I would agree that the best solution is simply saving or budgeting the money throughout the year so you have it to spend once the holidays roll around.
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Thomas S. Moore

I remember growing up and layaway was used more then credit cards especially at places like Walmart. Looks like they are back to pushing it again. My view was that if I cant pay for it I don’t need it. So if I saw something I would just save for it then go buy it. There are cases where putting something down and knowing you are going to have it paid off in the next month or something is worth while.
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Veronica @ Pelican on Money

Some companies are bringing layway back big time. I’ve never purchased anything this way and certainly don’t plan on it. You highlight some very good reasons not to. Why layaway when you can save money over time, just never made sense.
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Kay Lynn

I agree that saving in advance is a better option than using layaway. However, if layaway helps a family pay for their holiday gifts without credit card debt then it may be the lesser evil.
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Yeah, on a scale, layaway would be well ahead of credit card debt on a continuum.

Personally I’ve never used it, or hire purchase, and don’t think the numbers would ever stack up (which I wrote about here: http://nzmuse.com/2012/05/02/layby-hire-purchase/).
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Paul @ The Frugal Toad

I’ve never used layaway. I save a little each month so that I have what I need in December. I guess it is a kind of forced savings for those that struggle with that, but the fees make it an expensive option.
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Elizabeth @ Simple Finance

I couldn’t agree more!!! The arrival of Christmas every Dec. 25th is NOT a surprise; I feel like if you haven’t been able to save up enough to spend on gifts over the preceding 12 months, you probably shouldn’t be spending it at all!
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Dominique Brown

I completely agree with you. When placed on layaway, inexpensive items could result in fees equal, or sometimes higher than credit card interest rates. You also tend to get the urge to purchase more items when you go to the store to make a layaway payment. It is much better to save on things that you want to buy and pay upfront to avoid these problems.


Tie the Money Knot

Great analogy of how championships are often won by the victories earlier in the season. Saving now can help with expenses later, and that concepts of course goes well beyond layaways.

With respect to layaways, I say no thanks. Again, saving ahead of time is a better approach. If one must pay later, simply charge it but then pay the credit card bill completely in full when due.
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Kristy Willis

I totally agree with saving first before buying something that you desire to have. Instead of owing money from any company or anyone, just save up and buy the item you wish later on. You’ll get your item at the same time teaches you self-control.



If you can’t pay right away, it’s best to use a credit card. At least you don’t get to pay a down payment. But the best option is to save up for the item first. Nothing beats the feeling of buying something you wanted for a long time and something you saved up on.
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