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Layaway plans are a retail alternative to credit card purchases. Through a layaway plan, retailers offer a way for consumers to make large purchases by paying in instalments. Popular for decades, layaway plans faded into near obscurity during the 1990s and early 2000s as credit cards became easier to obtain.
As the economy approached a recession in 2007, a number of retailers revived layaway purchase plans for the convenience of their consumers. Here's what you need to know about layaway plans for making retail purchases.
A layaway plan is a financial purchase agreement between a retailer and a customer that allows the customer to make instalment payments against the full purchase price of an item or number of items. In other words, if a customer wants to purchase a £325 television under a typical layaway plan, he would make a £81 down payment and then agree to pay £32 every two weeks until he has paid the entire £325. The store takes the television off the selling floor so that no one else can buy it, but the customer can't take the television home until the entire purchase price is paid. In return for offering a layaway plan, retailers usually charge a layaway fee. That fee may be a flat rate or a percentage of the full purchase amount.
Most layaway plans are short term budget payment arrangements. The typical layaway arrangement is for 30 to 60 days, though the exact term of the agreement varies from retailer to retailer. Furniture companies, for instance, may have layaway programs that last as long a year. Bernie and Phyl's Furniture, a New England fixture, is an example of a typical furniture layaway plan. They accept at least 20% down payment at the time you place your order, and regular monthly payments for up to a year.
Layaway plans carry benefits for both retailers and consumers. Retailers who offer reasonable layaway terms to customers can increase their sales to include those customers who can't afford to pay for larger purchases all at once. Because the merchandise doesn't leave the store until it is paid for in full, there's little risk of loss to the retailer. Since the administration of the layaway plans is handled in store, the retailer doesn't need to pay fees to payment processors.
The benefits to customers are even more obvious. Layaway purchases make it easier for customers to make larger purchases without resorting to credit cards or loans. Layaway fees are nearly always far less than interest payments. Layaways allow a customer to take advantage of a sale price even if they are not in a position to pay the full sale price immediately. Regular monthly or weekly payments make it easy to fit purchases into a household budget.
There are a number of things to consider before agreeing to a layaway plan agreement. These are some of the most important areas to consider before signing a layaway contract.
Fees The exact fee amount will vary from one retailer to another. Some retailers offer a single flat fee for all layaway purchases, regardless of the purchase amount. Some retailers charge a percentage of the total purchase amount while others offer a sliding fee scale, depending on the amount of the purchase. In addition to layaway fees, some stores may also charge a fee for storing your purchase, late fees on missed or late instalment payments and fees for early termination of the agreement.
Terms of the Agreement The terms of the layaway agreement should clearly state when instalment payments are due, how many instalment payments are to be made and the date the last instalment must be made. It should also clearly state how much each instalment will be, whether there is a grace period and the specific consequences of a missed or late payment.
Cancellation and Refund Policy Before you sign, you should know the retailer's policy with regard to cancellation and refunds. Some stores will refund all of your payments less a small fee, but many have other conditions. Some only make refunds in the form of a store credit. Before you sign, be certain that you understand what will happen to your money if either you or the store cancel the agreement.
Miscellaneous Considerations Many layaway agreements have other conditions that are specific to the retailer or the business. Furniture stores, for instance, often will not order your furniture until most of the payments have been received. They may require up to eight weeks notice before you plan to pick up your furniture so that it is ready for you. Still another common consideration is what happens if the merchandise you have on layaway goes on sale during the layaway period. Check with the retailer to find out whether the amount of the layaway can be adjusted. Most stores will not make those price adjustments automatically, and some will not make adjustments to the purchase price at all.
Layaway plans are not the same as credit instalment agreements. In most credit agreements, the customer takes their purchase home with them immediately and pays interest on the purchase amount until it is paid off in full. In a layaway plan, the merchant doesn't release or order the merchandise until the purchase price and fees are paid in full.
Like any sales agreement, a layaway involves a purchase contract. It's important to read and understand all the terms of the contract before signing the agreement so that you understand exactly what you will pay and how you and your money are protected. Many states have laws that protect consumers who make layaway purchases. The State of New York, for instance, requires that a merchant disclose the entire purchase price, including all fees for layaway, storage and administration, for layaway purchases. Check the laws in your state to find out your rights in a layaway purchase.
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