Layaway ('' lay-by'' in Australia, New Zealand, and South Africa) is a purchase agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item, and only then hands over the item.

Description

Rather than taking the item home and then repaying the debt on a regular schedule, as in most installment plans or

hire purchase A hire purchase (HP), also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment (e.g., 40% of the total) and repaying the balance of the price of the asset pl ...

s, the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must "lay" the item "away" in storage until the payments are completed. Because there is little risk involved for the seller, layaway can be readily offered to those with bad

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a de ...

. If the transaction is not completed, the item is returned to stock; the customer's money may be returned in whole, returned less a fee, or forfeited entirely. The main advantage of layaway is that no interest is charged. However, the seller will be reinvesting the payments into ventures (usually the business itself) with an ROI at or above the risk-free rate, which is effectively interest forfeited to the seller. In addition, the price is fixed, availability is guaranteed by reserving the item in stock, and an item being purchased as a gift can be kept secret. Consumers may also gain a sense of living within their means. However, consumers face potential financial loss in the case where a retailer declares bankruptcy prior to collecting the item.

History

Layaway became common during the Great Depression of the 1930s. It was widely withdrawn during the 1980s,''

The Economist ''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Econ ...

'', (Jan. 10, 2009) U.S. print edition, p. 31. as the ubiquity of

credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...

s decreased its utility.

Wal-Mart Walmart Inc. (; formerly Wal-Mart Stores, Inc.) is an American multinational retail corporation that operates a chain of hypermarkets (also called supercenters), discount department stores, and grocery stores from the United States, headquarte ...

announced in September 2006 that it would discontinue layaway service in all its stores, citing the decrease in demand and a rise in cost of implementation. However, in September 2011, Wal-Mart resumed the service in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., federal district, five ma ...

due to the new financial difficulties imposed by the economy and the increased constraints on

consumer credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt ...

. During the 2012 season, many retailers were heavily advertising their layaway service and offering it for free (or effectively free) if all conditions were met. In contrast,

Kmart Kmart Corporation ( , doing business as Kmart and stylized as kmart) is an American retail company that owns a chain of big box department stores. The company is headquartered in Hoffman Estates, Illinois, United States. The company was inco ...

has been providing layaway in the United States for over forty years, and was at one time the only major national discount retailer offering the service. Other large retailers offering layaway programs include

Burlington Coat Factory Burlington, formerly known as Burlington Coat Factory, is an American national off-price department store retailer, and a division of Burlington Coat Factory Warehouse Corporation with more than 1,000 stores in 40 states and Puerto Rico, with i ...

Marshalls Marshalls is an American chain of off-price department stores owned by TJX Companies. Marshalls has over 1,000 American stores, including larger stores named Marshalls Mega Store, covering 42 states and Puerto Rico, and 61 stores in Canada. M ...

Sears Sears, Roebuck and Co. ( ), commonly known as Sears, is an American chain of department stores founded in 1892 by Richard Warren Sears and Alvah Curtis Roebuck and reincorporated in 1906 by Richard Sears and Julius Rosenwald, with what began ...

, and T.J. Maxx. In Canada, it is available from many businesses including

local bike shop A local bike shop or local bicycle shop, sometimes abbreviated LBS, is a small business, as distinct from a chain, mail-order or online vendor, specializing in bicycle sale, maintenance and parts. In the UK and Ireland, the expression ''in ...

s, jewellers, and adventure holidays.

Variations

Online layaway allows consumers to purchase items through scheduled deductions from a checking account. Online layaway simplifies layaway for both merchant and consumer by removing the costly, time-consuming storage and bookkeeping processes. Layaways remain at the distribution center during the layaway period instead of taking up valuable retail warehouse space. Just as consumers used layaway payment plans to purchase products at

brick and mortar Brick and mortar (also bricks and mortar or B&M) refers to a physical presence of an organization or business in a building or other structure. The term ''brick-and-mortar business'' is often used to refer to a company that possesses or leases ...

stores in the past, they can also use layaway to pay for online products and services which serves as an alternative budgeting tool and a means to avoid debt and it can help consumers reserve a product that is hard to get or not always available due its high demand and popularity. Products and services that have layaway offerings online vary from netbooks to home gyms and from concert tickets to layaway vacations. Many stores offer layaway during the

Christmas Christmas is an annual festival commemorating the birth of Jesus Christ, observed primarily on December 25 as a religious and cultural celebration among billions of people around the world. A feast central to the Christian liturgical year ...

season, and it has been a tradition for some individuals to make holiday layaway donations, thus releasing the purchased items to the layaway participant."Anonymous ‘Layaway Angels’ Return to Pay Off Strangers’ Balances"
(Dec. 21, 2012) Yahoo! Finance Guaranteed consumer funding is a type of credit similar to layaway, which allows consumers to purchase items on a payment plan regardless of their credit history.

References

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Weblinks

Delayed Gratification (2008)
in ''The New York Times Magazine'' Retail financial services Great Depression in the United States Payment methods in retailing

Description

History

Variations

See also

References

Weblinks