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The Truth About Layaway

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Years ago, most big box retailers had a service desk, usually somewhere in the back, with the word Layaway plastered above a large collection of seemingly randomly sorted items.

Stores like K-Mart (R.I.P.) and Wal-Mart allowed its customers to reserve an item that they could not currently afford. They would then make scheduled payments towards the item interest free until the full amount was accrued. Only then would the item on Layaway be given to the customer.

The way of the Layaway is fast returning. Its now common to see its availability in both physical stores and online.

This strange way of exchanging goods has its roots in the Great Depression. But does buying something on Layaway make sense in the modern era? What are the pros and cons? Why not just use a credit card or slowly save up and buy the item up front?

I’ll go over all this and more in this primer on Layaway.

What is Layaway?

Couple Shopping with Bags

When you decide to purchase an item through Layaway at a store you are entering into an agreement to purchase the item over time. The store will physically take the item out of their inventory and set it aside. This item is no longer able to be purchased by other potential buyers.

From there you will be placed on a payment schedule. Usually, the interest charge for putting something on Layaway is 0%. You will be paying only the original cost of the item. Unlike a credit card, paying for something on Layaway doesn’t necessarily put you in a position where you will pay more for the item than its original list price.

Once you have paid for the item in full over weeks or months you will then be given the item.

The Benefits of Layaway

  • Available for those with Bad Credit – Since there is limited risk to the seller the need for a good credit score by the purchaser is negated. If the buyer defaults on the agreement, the seller still has the item in their possession. They can simply return the item back to the store’s inventory.

  • Allows a Consumer to Purchase Hard to Get Items – By taking the item out of the available inventory, Layaway can ensure that the buyer can get access to hard to get or limited inventory.

    For example, if a new line of special edition sneakers hit the shelves with only a limited number in production, Layaway can ease the purchase and guarantee of the item for those who may not have the money upfront.

  • Useful to Teach Kids about Personal Finance – There are many critics of Layaway (including myself), however there may be a opportunity to teach children about personal finance through its use.

    For young children in particular, it can help aid in focusing their attention on how much something costs. If they must work and pay for an item over time it may help them respect the tradeoff for other items in the future.

  • Limited Additional Costs – When compared to carrying a balance on a credit card, Layaway is simply cheaper. Although I don’t recommend using a credit card that you don’t pay off each month, if you are going to choose between credit and Layaway then go with the latter.

    Generally, merchants won’t charge interest on your item. Although there may be fees, they are known in advance and the chances you will owe more at the end of the process than you were at the beginning is low.

The Drawbacks of Layaway

  • Changing Your Mind Could be Costly – Using Layaway typically requires agreeing to buy the item contractually. Changing your mind after you have made the agreement in this case would be considered default.

    Defaulting on your Layaway purchase can result in a penalty fee, the loss of part of the money you have paid or even all of it. Alternatively, if you would have just saved for the item prior to purchasing it instead of using Layaway there would have been no cost to change your mind.

  • The Item May Depreciate While You are Unable to Use It – Putting an item on Layaway means that you can’t have it until you pay for it in full. If the item in question is something that depreciates (loses value) over time, then you will essentially be getting something of lesser value by the time the repayment term is up.

    A great example of this is any type of technology. If you put a high-end Television on Layaway for 6 months, it is highly likely that it will be worth less by the time you receive it. As newer models become available it lowers the value of older models.

    For electronics and technology related products it is even more beneficial to pay for them upfront and in full. Getting hit with the effects of depreciation before you even have the item is a stiff reality that should make you think twice about buying it at all.

  • You are at the Mercy of the Retailer – If the retailer goes out of business or changes the terms of your Layaway agreement (perhaps they sell it and are unable to replace it) then you may be left holding the bag. In a normal transaction, the exchange of goods happens immediately.

    There is no period where the relationship or the circumstances can change drastically.

    When using Layaway, a lot can happen that may make the experience more difficult. Ensuring you do business with a large reputable retailer may be the only way to ensure a positive outcome. Attempting to use Layaway at a Mom and Pop store may result in a higher risk of financial loss.

    Disagreements or changes with the retailer’s circumstances may result in you losing your money, the item on Layaway or both.

Why Do Stores Offer Layaway?

You may wonder why a retail store would take a product out of circulation and hold on to it so you can slowly and methodically pay for it over time. Well, the answer is simple: the store is able to keep the item as collateral while they can simultaneously take the money you pay them over time and put it to work.

Essentially, they can earn a return off the money you have paid up to a certain point with no risk. If you default, they have the partial payments and the underlying item still in inventory. It’s a riskless win-win for the retailer. You are essentially giving them a free, no-interest loan with defined terms that only benefit the retailer in the case of default.

Should You Use Layaway?

No. Using Layaway to make purchases is not something any smart Financial Advisor would recommend. However, neither would using a Credit Card and holding a balance each month.

As mentioned above, there may be some use for Layaway when compared to more traditional forms of debt, but it should not be a regular part of any consumer’s purchasing patterns.

Using Layaway to teach Children the value of work and other Personal Finance topics could be a powerful tool as long as the main take away is not that Layaway is responsible way to buy things we can’t afford.

If you are thinking about using Layaway then two things are true:

  • You can’t afford the item you are trying to buy.

  • You don’t need the item you are trying to buy.

Since you can’t afford it and don’t need it then don’t buy it. It’s as simple as that. If you want the item bad enough then set an amount aside each time you are paid into a savings account.

When you have saved enough to purchase the item in full, make sure you take a moment and reflect on the effort it took to save all that money. Is it still worth it to you? Could that money be better used elsewhere?

If you decide to follow through on the purchase of the item after saving for it, reflect on the experience again. Was it everything you had hoped? How did it feel to walk in and buy the item without the need for Layaway or debt?


Saving for a Purchase in AdvanceLayaway is a financial tool offered by retailers that connects a consumer with a product and establishes an agreement to buy it over time. The purchase is usually low in fees and often without interest. The consumer does not receive the item until after it has been paid in full.

When compared to purchasing something on a credit card, Layaway can appear to be the better choice.

The best choice, however, is to always pay for your desires up front and in full. This may be less exciting and result in missing out on items that are limited in quantity but that is life. There is no way to game the system using Layaway that will put you ahead in life over the long run.

I hope you enjoyed this article. If you have any other thoughts or questions about Layaway, then throw them down below in the comments.

Guy Money

As a formally trained Data Scientist I find excitement in writing about Personal Finance and how to view it through a lens filtered by data. I am excited about helping others build financial moats while at the same time helping to make the world a more livable and friendly place.

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