I saw a headline that Kid Rock paid off $81,000 of layaway plans at a Nashville Walmart store.
Very nice of him but I am curious why anyone would do a layaway?
Why give the store monthly payments for a future purchase? Why not keep the money yourself, invest it or at least earn interest, and then buy the item once you have enough money to do so?
What am I missing?
I think it’s for people who aren’t any good at saving money. If it is in the checking account, it’ll get spent on something else (either critical or frivolous). The layaway becomes a current bill, so they are more likely to pay it off.
Do stores that provide layaway do any sort of interest charges? If you miss a payment (or a bunch), do you lose both the payments and the article?
Maybe to insure they get the newest most coveted this-years toy. I knew a person who used layaway to keep her kids from snooping and finding their toys. But mostly to pay it off a bit at a time. I think.
I’ve only ever seen layaway for items that are currently out of stock at a store. You pay them in advance, and in return, when they get more in at the next shipment, they’ll set one aside for you to guarantee that you get one.
Hedge bet against the item you want being available, or maybe hoping some rich guy pays it off.
This response heavily edited prior to posting. Been drinkin’…
I really do not know but since you are not buying on credit I cannot see how they can charge interest payments. They keep the item till you pay the full amount. Perhaps they charge a fee for the service but otherwise they get your money in their accounts where they can earn interest or invest it to make more money so it works for the store.
I wonder what happens with sales and such (e.g. you have the item on layaway and are 75% paid up and then the store gives a 50% discount).
My grandma used to do K-Mart lay-away all the time despite being fairly well-off. My only guess being that must have some promotion for doing lay-aways like getting a free gift card or something, no other reason why my grandmother would wait a month to get a television if she could afford to pay it off immediately.
Something sort-of related that used to be a thing was the Christmas Club. In this, you deposit a certain amount each week in a special account and then the bank gives you the accumulated balance in time for the Christmas shopping season.
Like lay-away, this may not make any sense to those not living paycheck-to-paycheck. But for those who are, both are ways to pay for stuff.
Edit: Rainchecks don’t require payment up front, so I guess what you described is a layaway.
I haven’t used layaway for many years, but when I did it was because a) I wouldn’t have the full price for another paycheck or two, b) I was afraid they’d be out of stock when I did have all of it, and c) I didn’t have any credit cards.
I don’t think people with investments or accounts that earn a meaningful amount of interest are really in the target market for layaway.
It’s much less common for stores to offer it than it used to be. The fact that Walmart, which offers a lot of services aimed at the lower end of the financial spectrum, can’t find any value in offering layaway outside of the Christmas season means there probably isn’t a huge market for it.
When I was a kid, my family used it all the time, usually for school clothes, and also at Christmastime, probably as yet another way to hide the goodies from prying little eyes.
My state has a tax-free weekend in August, and when we still had Kmart here, one of my friends would take her kids there a couple weeks ahead of time, let them pick the things they wanted, put them on layaway, and then get them out on TFW and get about an 8% discount. (Clever!)
This. Not everyone puts their money in the bank. I know people who cash their paychecks at Walmart and keep the cash at home and keep spending it as long as there’s cash with no clue how much is left. Layaway is a way to be sure they can buy something they want since they keep making weekly or monthly payments.
As for why the stores do it, it’s free cash for them if someone cancels. From Walmart’s layaway policy:
“Cancellation - If your Layaway account is canceled, items will be returned to inventory. Any down-payment and payments made will be refunded, less a $10 cancellation fee. Cancellation fee does not apply in Maryland, Ohio, Rhode Island or Washington, D.C.”
It’s a way of paying off a purchase without incurring any interest.
I still do a Christmas club at the credit union. They give you no interest, but you get premiums ( gifts) and on the day you’ve paid in all you want and it’s time to get your money out (late Nov.) They have a party and freebies, plus drawings for gifts. I won a $100 gift card this year. Fun stuff.
When I started working, I was paid in cash weekly, and although almost everyone who owned a house had a bank account, there were still working-class people who paid their rent in cash – as I did for many years in cheap housing.
When I started working, banks only operated in banking hours, and even though there were branches everywhere, they mostly were not in industrial locations.
When I started working, layaway was still common, though even then not nearly as popular as it had once been.
Here in Oz they get called a layby, and they are tightly regulated. But they do make sense. The most important point is that you are contracting to buy a particular extant item. The store is required to put the item away, and will give it to you when it is paid off. (Here in South Australia at least it is illegal for a store to enter into a layby and not have the specific item kept for the customer.) As mentioned above, great for people that have difficulty saving, but it also acts as a form of term buying where you don’t need any sort of credit, and the store takes no risk. So people with no, or very poor credit rating can work out a way to buy something over time. But the reason it still works is that items on sale can often be bought on layby. So you lock in the sale price, pay off in time, and don’t need a credit card or credit rating to do so.
If you fail to meet payments, the contract will have appropriate clauses. But since you are not in default on credit, you usually simply don’t get to buy the item and probably lose a surcharge. A shop will not get to simply walk with your payments so far. In reality most shops are pretty loose with the terms, and are happy so long as something is being paid.
It seems odd nowadays that layaway still exists (I believe most stores no longer have this option). But before credit cards, it was a common purchase tactic.
As a teenager in high school, I remember using it to buy a $150 Minolta 35mm camera that I really wanted. I paid $10 on the account whenever I could – every few weeks – until it was paid off. That way I was assured that the camera wouldn’t be sold to someone else. No one in my family had a credit card at the time. I’m not sure, but I don’t think interest was charged and there must have been a finite time the store would hold it.
They weree much more common back when credit cards were something only upper-middle class & above had. Most working class people couldn’t even get a credit card, even if they wanted one.
Not really. By giving your money to the store, they are earning interest that you have foregone – if you had instead kept that money in a bank account, you would be earning interest on it, so it is a net loss for you.
However, most people who use layaway aren’t likely to have much of interest-bearing accounts. Just not being hit with interest pr fees is a rarity for them.
Yes, but even if someone has the ability to earn interest, I don’t think the typical layaway agreement is for so much money or time that the possible interest would amount to more than a few cents.