Credit Card-Free Shopping: Layaway Makes a Comeback

Remember the days when if you couldn’t afford something, you couldn’t take it home with you? That’s right, you put it on layaway, and paid the retailer in installments until you were the proud owner of a new outfit / television set / bicycle / etc. The concept of layaway was born during the tough economic times of the 1930’s, but fell out of fashion as we became hooked on the "get now, pay later" magic fairy dust of credit cards. It’s true that what goes around comes around, though, because this quaint retail practice is making a comeback.

For my parents, longtime owners of a ladies’ clothing boutique, layaway was all the rage a few decades ago. I remember seeing rows of dresses and suits in the back room with layaway tags around the hangers. They required a 30% down payment, and you had to pay for your item in full within 3 months. This short time frame made sense; You didn’t want to wait until winter to sport your new linen suit, for instance. Some customers walked away from their layaway purchase after they had put money down on it; They either decided they didn’t want or need the item, or perhaps couldn’t really afford it after all. In those cases, the customer lost their deposit and my parents put the merchandise back out on the floor (usually at a markdown because the season had passed its peak).

In the late 1980’s my parents started offering their customers a store-branded credit card, and layaway quickly became a thing of the past.

Layaway versus credit

Layaway is the opposite of credit. Instead of getting something now and paying for it later, layaway forces us to put cold, hard cash down before we can take an item home with us. It’s a good option for those of us who have too much credit card debt already or are worried about interest rate hikes from our credit card companies.

Stores both big and small are responding to the credit crisis by offering customers layaway options again. Kmart, TJ Maxx, Marshalls, Burlington Coat Factory, and Sears are a few among the group. Many retailers require a small fee for the service. Kmart, for instance, charges $5 for each item put on layaway. 

Layaway...21st century style

Some internet research about layaway quickly led me to its digital counterpart: www.eLayaway.com, whose motto is "nothing feels better than being debt-free." eLayaway has partnered with over 700 merchants to offer their products on layaway. Here, an iPod Touch is not $229, but rather $42/month. Membership with eLayaway is free, though there is a transaction fee of 1.9% on the layaway total. On the site you select a product you want to buy and how many installment payments you’d like to make on it. Then your payments are automatically deducted from your bank account until the purchase is complete.

An interesting promise the eLayaway site makes is to "improve your credit...debt-free!" Apparently, if you become an eLayaway advantage member for $8.95 a month, your eLayaway will report your payments to the Fair Isaac Corporation (creators of the popular FICO credit score), who then uses them to compile your Bill Pay Score. I’m not sure what exactly a Bill Pay Score is, or how many lenders would look at this, so be weary before spending $8.95 on a membership program that doesn’t help you build the kind of credit that counts.

Even better than layaway

Instead of putting something on layaway, though, why not make monthly payments into your own savings account instead? This is just as financially responsible as layaway, with the added benefit of earning some interest while you save up. Unless you’re worried about the item running out of stock, try making payments to yourself, then go into the store when you have all the cash together for your purchase. True, this requires some discipline, but it also lets you change your mind about an item - penalty-free - should you decide you’d rather spend your money in some other way.