Friday, November 18, 2011

Watch Out for Layaway Tricks and Gimmicks

Layaway programs became popular during the Great Depression. Layaway was used as a form of payment prior to credit cards. Layaway allowed consumers to purchase an item and pay for the item in installments. Once the item was paid in full, the consumer received the item.

As credit became available layaway programs became more popular with those who did not have access to credit – low-income shoppers. Layaway programs were phased out in the 1990s and most were completely eliminated.

Senator Charles Schumer is pushing that retailers inform consumers that layaway plans can actually cost a consumer more than using a credit card. Senator Schumer states that the cost of a layaway with a $5 fee can equal 40% interest over 2 months. Senator Schumer says if retailers don’t comply he will ask the Federal Trade Commission to determine if the practice is deceptive and misleading.

Senator Schumer said, “The holiday season is supposed to be about giving and not taking, but these layaway programs are taking advantage of people and charging them outrageous interest rates, under the guise of making it easier and more affordable to shop.”

Layaway is not a reason to spend more money than you should. Layaway requires you to be responsible shopper. Don’t go overboard this holiday season because of layaway. If you don’t have the money to buy something that means you can’t afford to buy it and don’t need it. You have to ask yourself why are stores bringing back layaway. Is it to help consumers? Wrong! Layaway was brought back so stores can make more money.

Some shoppers may feel the pressure of the holidays and may see layaway as a good option due to commercials and ease of the programs but don’t consider the hidden costs. Wal-Mart terminated its Christmas layaway program in 2006 but is bringing it back this holiday season. Some stores offer layaway for free year round in addition to the holiday shopping season. Some stores that offer layaway are: Wal-Mart, Sears, Best Buy, Kmart, TJMaxx, Burlington Coat Factory and Toys R Us. Here are 8 advantages of using layaway:

1. No interest.
2. Pay for items in installments over a period of time.
3. May be able to purchase items on sale.
4. No set payment schedule.
5. Purchase received when paid in full.
6. Easier and more convenient.
7. The fees and terms never change.
8. Doesn’t require a credit card or debit card.

Here are 13 disadvantages of using layaway:
1. Enrollment fee or service fee can range from $5 to 5% of the total purchase price.
2. Downpayments can range from 5 to 10% the total cost of the items.
3. Requires minimum purchase.
4. May have to pay the full cost of items instead of the sale price.
5. If an item goes on sale, you may not eligible to get the items at the new sales price.
6. If you miss a payment, your purchase may be canceled and you may lose any money paid or may be able to get store credit or a gift card.
7. Payments only accepted in person at the store.
8. Only available on certain items.
9. You have a certain amount of time to pay for the purchase usually 2 to 3 months.
10. Spend more in gas costs and mileage going to the store to make payments.
11. You may miss out on other sales such as Black Friday.
12. If the store goes out of business or files bankruptcy you lose your purchase and your money.
13. Online sites may require additional fees.

If you're unable to complete the payments by the due date, you have to pay a cancellation fee and/or restocking fee of $10 to $15. You may get back any money you paid on the items or lose all of your money depending on the store.

You don’t pay an interest rate using layaway but you do pay interest. You pay more for the purchase than if you just paid with cash. For example, if you put $300 worth of items in layaway, you will have to pay a service fee of $15 (5%) and another $30 (10%) for the down payment. The down payment is applied to your balance but the service fee is not. You will end up paying a total of $345 ($15 + $30) for your purchase or an additional 15% of the original cost of the item.

If you have to cancel your purchase you will pay $10-$15 so you will lose $25 - $30 (8.33 – 10%) of the cost of the item. Make sure you shop with a reputable name brand company.

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