Money Saving Mondays: Layaway

Shopping "on layaway" -- it's something your parents or grandparents can definitely remember, but after falling out of favor in an era of widely available and cheap credit, this decidedly low-tech way of shopping on credit has been making a big, if quiet, comeback at several store chains.

"Our layaway business has definitely peaked higher this year, especially with the promotions that we've been running trying to drive the business,'' said Braintree, Mass., K-Mart manager John Lanni. "It's definitely very busy this year.''

K-Mart lets you buy anything in the store, put it in storage, and pay for it over eight to twelve weeks, usually for a $10 fee, but often that's waived, or the minimum deposit -- typically $15 or 10 percent of the cost of the purchase, whichever is higher -- is waived.

K-Mart's sister chain Sears has also brought back layaway in a big way. Ed Downey, who runs the Dedham, Mass., Sears, said, "A lot of people are taking advantage of it. We see that a lot in apparel, but also in the larger items. We have layaway available for appliances. We have layaway available in our electronics department.'' It's appealing obviously to people with poor or no credit -- especially after the 2008 meltdown led to drastically tightened lending standards -- but also those who just don't want to max out their outstanding balance. Downey said many of his layaway shoppers are working "with a limited reserve left on their credit card, and they want to hold that for something else, and at Sears, it's very important to us that we give you as many ways to shop as possible.''

You should, of course, be clear on the terms and costs. Most important, you will typically have to pay a "program fee" to use layaway. At K-Mart that's $10, unless waived, and it's important to run the numbers to know how big an effective interest rate that represents for, say, a $300 or $500 purchase you pay off over 8 or 12 weeks.

You should also be sure you know what kind of fee you will pay for a purchase you start but later cancel, such as a cancellation or restocking fee, and be sure you are clear on whether in that situation you'd get back payments you've made as cash or just as a store credit.

But as you're thinking through the upsides and downsides of layaway, one bonus Lanni cites that may matter a lot this time of year to many consumers: "We have shoppers that come in who don't want their gifts inside their house for a couple of months, so they use our layaway program just so the kids don't go rummaging through the basement and the attic looking for the gifts.''