Stores Reintroduce Layaway Payment for Shoppers

Stores are reviving an old method of retail practice as an option for consumers, who are financially-broke or have limited credit lines or closed credit accounts.

Lay-away program is an alternative solution for shoppers who are short in cash, but opted not to use credit cards. In this method, stores and retailers allow consumers to purchase an item in staggered payment.

Unlike credit cards, lay-away have no interest charges.

Under this program, shoppers are required to make a down payment first, mostly 20 percent of the purchase price. Aside from this initial payment, consumers have to pay $5 as service fee for a lay away account. The store will hold the item until it is fully paid. A fine of $10 will be charged if customers decided to cancel the purchase.

Lay away is popular during 1960s and 1970s because credit cards were not yet emerging then. It became obsolete with the widespread use credit cards in 1990s.

Some stores in the US started reintroducing this program as early as October this year in response to the critical economic condition, massive reduction of credit lines and closing credit accounts.

Susan Grant, director of consumer protection at the Consumers Federation of America - an advocate group, said lay away is a better alternative to using credit cards. However, she advised shoppers to read and understand the policy before applying for the program.

She added that this is also a great way to adopt a new attitude - saving money first before buying. This practice is totally different from credit card's slogan: "shop today, pay later" - which drives most Americans to splurge in shopping, resulting to piles of debt.

Although only few stores and retailers are applying this old method, lay away payment has become popular overnight in the web world. In fact, more websites were built to accommodate online shoppers.

Electronics, appliances, toys and games are common items being sold in the websites. Unlike in stores, consumers are not required to pay service fees in layaway websites.

However, consumers who shop online will be charged more than one to two percent for transaction fees. The cancellation fee costs $25 to $35 or 10 percent of the cost of merchandise, which is much higher than what the stores are charging.

In December last year, lay away shared a very small percentage in the market, only seven percent of consumers opted to shop using such payment scheme.

The December 2008 survey conducted by Consumer Reports, 76 percent shoppers chose to use cash for holiday purchases, 51 percent respondents opted to use debit cards, and 50 percent still used credit cards.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.