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10 Things to Know About Using Layaway

Paying over time for items can help you manage holiday spending

"I'm a fan of layaway because it's a way you can avoid using credit cards and stay out of debt," says Hank Coleman, founder of the advice website "But don't let layaway rules force you into buying extra items or unnecessary stuff just because you're not spending all your cash up front."

2. Is a down payment needed?

Most retailers require an initial payment ranging from 10 percent to 20 percent of the cost of the merchandise. So putting $300 worth of winter coats on layaway at Burlington Coat Factory would mean forking over $60, since the company requires a 20 percent down payment.

3. Are fees involved?

Up-front service fees of $5 or $10 were once the norm for layaway plans. Today, many retailers are eliminating up-front service fees in order to make their layaway programs more attractive.

Wal-Mart, Kmart and Toys R Us now offer "free" or "no fee" layaway, for example.

"Up-front fees are being waived," says Connecticut Better Business Bureau spokesman Howard Schwartz. "But consumers still need to know about cancellation penalties, because in some cases those ... savings on the front end can be offset by penalties or fees on the back end."

4. What is the cancellation policy?

You need to know what happens if you change your mind, decide to cancel, miss a payment or can't pay your final balance. Does your merchandise get immediately returned to inventory? Are "restocking fees" or other penalties imposed? What happens to the money you've paid thus far? Do you forfeit those funds or can you at least get a store credit or a gift card?

If some form of credit isn't refunded, it's best to decline a retailer's layaway plan.

5. When must I pay for the merchandise?

Some stores have deadlines for when you have complete the payments, often 60 or 90 days, and also impose rules about when you must make interim payments. Have a clear idea about whether a retailer requires you to pay weekly, monthly or even on a specific day of the month.

6. Are certain items excluded?

Make sure that whatever you're considering buying is available for layaway. The website for Toys R Us notes that items such as special orders, food, formula and clothing items are not eligible.

7. Are in-store payments required?

Many businesses require you to make payments exclusively in their stores. Retailers know if they can get you in the store often enough, you'll not only pay off your layaway items, you'll probably wind up buying other merchandise. To minimize the temptation to overspend, ask whether you must go to the store to make payments or can pay by mail, phone or the Internet.

8. What forms of payment will the retailer accept?

Layaway programs have generally required cash payments. But these days, many stores accept checks and payments made via debit or credit card. If you're using layaway as a way to avoid credit card bills, you obviously want to stick to cash payments. But in a pinch, you may want to use a credit card if the alternative means forfeiting your deposit or payments already made.

9. When will my merchandise be available?

Don't think that once you make your last payment, you'll be able to pick up your layaway merchandise right on the spot. Depending on the items you've bought, it could take seven to 14 days for your layaway goods to become available. That's because some items may have to come from other stores, out-of-town warehouses or the retailer's central distribution center. For special orders or big-ticket items, be sure to ask up front about how quickly your merchandise will be available to you or delivered to a store once you've made your final payment.

10. What should I know about online layaway?

Online layaway services are good for helping you find merchants offering layaway. Use caution, though. Some websites such as impose restocking and processing fees of $35 on canceled orders. Also, unlike brick-and-mortar retailers that set aside or guarantee your physical inventory, websites such as warn consumers that it's possible the items you want may be unavailable or discontinued by the time you finish paying. You'll get a refund; however, it's disappointing if the layaway item you're counting on as a holiday gift for someone is ultimately not in stock.

"Layaway is a good deal for people who may have credit problems, people who don't have a credit card, and others who simply don't want to rack up credit card debt or worry about paying interest on their purchases," says Schwartz. "But the biggest mistake a person can make going into a layaway program is to not know what all of the [terms], fees, exclusions and penalties are."

Lynnette Khalfani-Cox, The Money Coach(R), is a personal finance expert, television and radio personality, and regular contributor to AARP. You can follow her on Twitter and on Facebook.

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