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Wal-Mart sweetens layaway deal

More retailers are embracing layaway, but it's not always the best deal for shoppers. Here are the potential pitfalls.

By MSN Money Partner Sep 4, 2012 4:45PM

This post comes from Kali Geldis at partner site Credit.com.

 

SCredit.com on MSN Moneyeptember has only just begun, but holiday layaway plans are already making the news.

 

Image: Gift (© Brian Hagiwara/Brand X/Corbis)Wal-Mart, the world's largest retailer, recently announced plans to extend its holiday layaway program by a month this year, in addition to tripling its service fee from $5 to $15. The catch to the Wal-Mart plan is that consumers can get that $15 back in the form of a store gift card -- a new, more consumer-friendly perk that eliminates the cost without cutting the convenience.

 

While that can be a good deal for consumers who are going to follow through on their layaway purchases, there are still some considerations that prospective shoppers should keep in mind before signing up for a layaway program with their retailer of choice.

 

"Layaway is like that practical Christmas gift," says Gerri Detweiler, director of education for Credit.com. "It's not horrible, but it's not fabulous either."

 

Retailers are increasingly getting in on the layaway game, according to a spokeswoman for the National Retail Federation. Last year, they were even pushing layaway plans with major ad campaigns. (Post continues below.)

Here's how a typical holiday layaway plan works: First, you choose the item or items that you want to buy for the season. Then you make a down payment that's normally about 10% to 20% of the total price of the product, plus a service fee. That service fee can vary, but is typically about $5 to $15.

 

Next, you start making payments on the product on a weekly basis until the product is paid off. Here's where it can get tricky. Miss a payment, and the layaway is considered canceled by the retailer and you can get back the money you've paid for that product, but you will normally forfeit the service fee and have to pay a cancellation fee also.

 

Certain states like Ohio and Rhode Island have passed legislation limiting whether or not the retailer can keep the service fee, so make sure you read the fine print on any layaway contract before you sign up to fully understand what happens if you can't pay or just decide you don't want the item.

 

The other downside to layaway plans is something that many consumers don't think about, Detweiler says.

 

"By putting stuff on layaway you may pay more -- either because you stop shopping the sales for that item, or because you pay a fee if you don't end up buying it," she says.

 

Prices on holiday items can vary significantly depending on where and when you shop. Hooking yourself into a layaway program for a TV that costs $450, for example, means that you might miss out on the last-minute sale for that TV that cuts $50 off the purchase price. You sacrifice the flexibility for the convenience of a payment plan, but that may be a deal you're willing to make.

 

Detweiler says layaway can be helpful for some consumers in that you can use it to space out a payment plan on regular intervals in the runup to Christmas.

 

"It can help you stay out of debt. You can take down the holiday decorations knowing you won't be faced with a new debt you have to try to pay off," she says.

 

Is layaway preferable to paying the interest on a credit card? Let's crunch the numbers on that $450 TV as an example. If you were to sign up for the Sears layaway plan for that $450 TV on an eight-week contract, you would pay a $5 service fee and a $91 down payment to start off. Then, you would pay $91 every two weeks for the next eight weeks, totaling $455. So, the APR on that plan would be 15%, pretty competitive with current credit card APRs.

All consumers should note, however, that layaway plans are not traditionally reported to credit bureaus, so this won't help you rebuild your credit score and report. To check where you currently stand, you can pull a free copy of your credit reports once a year at AnnualCreditReport.com or you can check Credit.com's free Credit Report Card to see where you stand.


More on Credit.com and MSN Money:

30Comments
Sep 4, 2012 8:35PM
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Do you remember when Walmart was happy to put things on layaway for free (meaning no service charge) because they wanted and needed the business?? Now that they've brainwashed almost all of us into thinking that we "need" to shop there I guess they charge a layaway service charge. I know it's been said before, but if Sam Walton was still alive, Walmart would be a heck of a lot better instead of his greedy, ungrateful, and unscrupulous children and grandchildren milking the consumer for every dime and forcing manufacturers to resort to making products in China. 
Sep 4, 2012 6:52PM
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The math is off.

$455 is not $450 + 15%.  15% of $450 is 67.50....Layaway is way cheaper than 15 percent interest on a credit card.  According to the example, $455 layaway vs. (450 + 67.50) for the theoretical credit card.  A $5 fee is a lot closer to 1%.   Layaway is much cheaper than the credit card option (in the example).
Sep 4, 2012 8:54PM
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i hate these stupid dating site comments, just as annyoing as wal mart itself
Sep 4, 2012 11:50PM
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Instead of layaway or credit cards, why not take that money you'd use for payments and stash it in a jar? Then, when it comes time to make the purchase, pay in full with cash. No service charges or interest! I've made all my major purchases in the last year that way, and it's worked out great.
Sep 5, 2012 10:12AM
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The article says that you will miss out on sales because of layaway.  You will miss the sale from other stores.  Every time I have had a layaway I have received any sale price the store offered on items.  They will give you the discounts when you pay off the layaway.  I have usually saved $50 to $90 every year and the best part is the kids can not find the gifts at home to peak.
Sep 5, 2012 11:35AM
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I always used lay-a-way when my kids were young.  I could pay it off before Christmas and the purchases were stored for me until I picked them up.  Where I worked we all used our half day at work to have a wrapping party.  It was fun and easy way to keep the kids out of the gifts.  I think lay-a-way is a great tool for families to not get into debt.  Now that my kids are in college their wants are bigger than Wal-Mart and Kmart, sadly.
Sep 5, 2012 8:52AM
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You may pay a little more to use layaway but if you charge and dont pay that bill off at the end of the month you will pay alot more for it. Lets say you dont even pay it off until next christmas season wow now look at all you added to the price of the past Christmas. It will make u wish you paid that small  layaway fee last year..
Sep 5, 2012 3:56PM
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Layaway is always a benefactor in my household because I do not have cash on hand most of the time.
Sep 4, 2012 9:51PM
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Retailers, WalMart included, were taken advantage of by consumers. It helped drive Sears- K-Mart to bankruptcy. They have to charge lay-a-way fees in order to help compensate for the xtra handling which is time, which is money. Consumers were putting stuff on lay-a-way, then leaving it there. Not only does it cost money to take it off the shelf, but then it is not there for someone who might pay cash for it. With all the extra handling and no money coming in to pay for it, retailers were forced to charge a fee.
Sep 5, 2012 1:40AM
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Good article on lay away but looks like it is also being used to lead one to a couple of "Free" Credit report sites that will seek to get you to sign up for monthly monitoring or protect identity or both.
Sep 5, 2012 3:18PM
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This a sign of the base line economy..that LAYAWAY IS A NEEDED service in much demand.
Sep 5, 2012 2:55PM
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a while back i could put something on layaway and take six months to pay it off. now layaway is geared towards working people. they are the only ones who can make a payment every two weeks. i`m on disability and can only pay by the month. so that $450 dollar tv would take me at least 4 months to pay it off. so in effect they took layaway away from people like me.
Sep 5, 2012 10:00AM
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if you use layaway ask  for a look at where they keep it
Sep 5, 2012 5:36PM
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Wal-mart's service fee actually went down from $15 to $5. Not the other way around as the article stated.
Sep 5, 2012 2:37PM
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If you're looking to use layaway what are the chances that you have an option to wait until the price comes down?  Take the $450 tv for example.  If the price for the TV comes down to $400 lets say on Black Friday ( about a month before Christmas) are you more likely to have $400 at this time than $450 today.  Also your Layaway payments would be higher if you wanted the TV for Christmas.(Assuming Layaway is available less than 8 weeks before Christmas)

Sep 5, 2012 11:15AM
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THIS WILL CHANGE THE ENTIRE CONCEPT OF RETAIL- COSTCO-****'S-TARFET-J C PENNY-SEARS- MCDONALDS-WENDYS-APPLEBEES- ALL FRANCHISES OR SO CALLED CORPORATE CONGLOMORATES HAVE STOLEN OWNER ORIGINAL CORPORATION AND CONCEPT EXPOUNDING WITHOUT PERMISSION THERE BY INFRINGING UPON COPYRIGHT AND PATTENT- ILLEGAL OF STOCKS OFFERED FOR PIBLIC SALE AND SPLITTING COMPANY OWNED STOCKS- SEC- NYSE - NEGLIGENT WITH SECT OF STATE - ATTORNEY GENERALS OFFICES IN EVERY STATE AND JUDGES WHO SIGNED DOCUMENTS OR  

COPYRIGHT S ILLEGAL AND CAN BE CHALLENG ED IN A REAL COURT OF LAW= WITH REALTOR FRAUD- ILLEG AL USE OR SALE OF LAND DEEDED BY QUIT CLAIM

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