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Layaway: An Alternative to Credit Cards?

Have you ever found an item that you wanted to buy, but it was out of your price range? It's tough when that happens, and sometimes you wish you could break your budget anyway.

There are options when you find yourself faced with this dilemma. A popular way to go around it is to use a credit card. When you use your credit card, you can pay off the purchase slowly over time. However, as you pay it off, you're also paying your credit card issuer through interest payments as well.L

Another option is to take advantage of a store's layaway program. Unlike a credit card, where you will pay off the purchase for weeks or months after bringing the item home, with a layaway program you will make regular payments until you have paid the full amount–then you can bring it home.

Benefits of layaway

Money Crashers explained there are many advantages to using a layaway program. One of the biggest ones is that there aren't any interest payments associated with the purchase as there are with credit cards.

"Layaway programs let you lock in at a certain price."

It also allows you to claim a highly sought-after item before they sell out, even if you don't have the funds to pay for it yet. U.S. News & World Report pointed out that this also lets you lock in at a price. Even if the price of the items on the rack begins to creep up, your item's price won't change. This can come in handy if you are trying to plan ahead for gifts that you know will sell out or increase in price as the holidays get closer.

Drawbacks to layaway

While there are plenty of advantages that are associated with opting into a layaway program, there are some negatives that go along with it as well. For instance, if you realize that the purchase isn't practical or needed after all, there is usually a cancellation fee. It's often a small charge; U.S. News reported that Wal-Mart's and Kmart's fee is only $10.

Money Crashers pointed out that there are additional fees that can go along with them as well, like service fees. These are also relatively small, but if you're buying something that doesn't cost much to begin with, the service fee rarely makes the program worth it.

Most stores will also require a down payment to be eligible for the layaway program. These differ from store to store, but some ask for 10 percent of the item's total cost. Depending on what you're paying for, this can be a steep price.

The payment terms are usually fairly strict as well. Payments might be due in person on specific dates, or the store policy might be that the total amount is due by a certain date. If you miss these deadlines, you may lose the item.

One of the advantages of the layaway program is that if the price of the items on the shelf begins to go up, you can still maintain that lower price. Unfortunately, this policy stands even if the price of the item begins to drop.

Layaway programs can make holiday or birthday shopping much easier, but there are drawbacks to these programs as well. Be sure you know all the terms and conditions, and that you will still want the item in a few weeks or months, before you sign up.