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5 things you need to know about: layaway

In these tough economic times, stores are bringing back a relic of the past: layaway programs. Here's a refresher on how layaway works, why it's back and what you need to consider before using the programs.

What is layaway? Layaway basically lets shoppers put a down payment on an item and then make periodic payments. The store keeps the item until the customer pays the tab in full.

Why is it back? In the 1980s and 1990s, easy credit flowed to consumers, making deferred gratification and pay-as-you-go seem quaint, said Tony Gao, a professor of marketing at Northeastern University. Now, with consumers tapped out and unable to access credit like in the past, retailers are trying to find ways to get consumers to spend. Sears, for instance, recently brought back its layaway program for the holidays, after discontinuing the practice in 1989.

What's it cost? While most layaway programs don't charge interest, there typically is a small fee involved. Sears and Kmart, for instance, charge $5 to put something on layaway. Elayaway.com, an online layaway service that works with more than 1,200 retailers, charges 1.9 percent of the purchase price. If it turns out a customer can't pay for the item, retailers will charge a small fee and put the merchandise back on the shelf.

What happens if an item goes on sale while it is on layaway? It depends on the retailer. Some will adjust the price accordingly. Sears, for instance, will only change the price once while an item is on layaway, so if the item is marked down repeatedly, the shopper will miss out on those savings.

Should I try it? It all depends on your financial situation. If you have credit cards and can pay them off each month, layaway doesn't make a lot of sense. Gao said layaway should be used only on the hottest products that are likely to sell out, because consumers can save on their own for ubiquitous items such as digital cameras or printers. “Layaway is not right for all shoppers, and it is not right for all purchases,” he said.

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