Should I Consider Layaway This Holiday Shopping Season?

Recently, retailers such as Sears, Kmart, HSN, Wal-Mart, and Toys “R” Us have revitalized layaway as a pay-over-time option for consumers who either can’t get credit cards or don’t want to use credit cards.

Twenty years ago, layaway was a popular way to finance large purchases. A shopper could pick out an item, put down a small percentage of the retail price and make payments over time until the item was paid for in full. The retailer would hold onto the item until the payment was fulfilled—limiting their risk as well.

So, what happened? In the late 80s layaway’s popularity waned. Store-issued credit cards and general use cards—such as Visa and MasterCard—became consumers’ go-to way to finance their purchases. Retailers gravitated toward the plastic option because, thanks to interest, they made more money when you purchased goods and services using a credit card. Consumers began opting for credit cards over layaway because they were able to take possession of merchandise immediately.

But as the economy hit a rough spot and consumers tightened their belts, these programs have had a resurgence in popularity. And while the current version of layaway is similar to its predecessor, there are some significant differences.

Old-time layaway programs allowed the consumer to pay as much or as little as they wanted for as long or as little as they wanted. You could conceivably have an item on layaway for many months with no real pay off date in sight. I’m embarrassed to say that I myself paid for a really bad gold nugget ring in 1987 using layaway and it took me almost a year to pay it off. Retail price: $279.

The current iteration of layaway doesn’t allow for such lengthy pay off schedules. In fact, the new plans offered by retailers have pay off periods of just a few months, which makes layaway programs of today more applicable to lower priced items. And, while layaway circa 1987 was largely fee free, today fees are common practice.

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These fees are usually nominal, between $5 and $10, and while that doesn’t sound like much it could easily equal 10 to 20 percent of the retail price of the item. Still, if you want to grab the hot holiday toys before they fly off the shelves, layaway and the set up fees might be an acceptable option.

Credit Benefits?

Layaway meets a loose definition of credit, but it doesn’t do anything to help your credit reports or scores. They are not reported to the credit reporting agencies so you won’t get any long-term credit building benefits. On the upside, you don’t have to worry about your credit scores getting damaged if you miss layaway payments.

In addition, layaway does not require a credit check or good credit scores, so practically everyone is preapproved for the program. Since there is no real loan and so no real financial risk to the retailer, a credit check isn’t required. Sure, the retailer may be stuck with the product in a post-holiday shopping slump, but this risk is mitigated somewhat because most retailers have layaway cancellation fees during the non-holiday months.

For consumers who are more attracted by online shopping, layaway is still an option.  Once your item is paid in full it will be shipped to you. Shipping fees may or may not apply, so read the fine print.

John Ulzheimer is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He is the President of Consumer Education at, the credit blogger for, and a Contributor for the National Foundation for Credit Counseling. Follow him on Twitter »