Mr. Penny Pincher: The Return of Layaway, With a Modern Twist

One day last week, I was surprised by the sudden chill in the morning air. Without warning, summer had given way to fall and my daughters walk to the bus stop required an oversized sweatshirt to guard against the cold. This could mean only one thing, the holidays are right around the corner. 

With the holidays comes the stress of making large purchases either with cash that’s been saved throughout the year or by way of credit cards. It’s hard enough to pay for everyday items like gas and groceries. Finding hundreds or thousands of dollars for holiday foods and gifts may be next to impossible for many of us. 

Although credit cards served as a necessary evil in order to keep our family afloat, my parents utilized layaway to pay for large purchases made at major retailers like Sears, Kmart and Wal Mart. 

With layaway, the store would hold the item on your behalf until you paid for it in full. Once paid in full, you would then take possession of the item, usually having made payments with no interest or late fees. The store extended credit with very little risk to the customer. 

This was an elegant solution for middle class families making large purchases, allowing you to split the cost over time. Unfortunately, layaway is no longer offered at most major retailers. Layaway been replaced with a similar concept called Buy Now Pay Later or BNPL loans. Rather than the retailer extending credit and holding the item until the loan is paid off, the credit risk is assumed by a third party and any purchased items are taken home that day. 

For example, Wal Mart uses Affirm as its BNPL provider. Affirm offers two options: Pay in Four or Monthly Financing. Here’s how it works: 

Pay in Four 

• Pay in four installments, due every two weeks 
• No fees  
• No interest charge 
• Available for online and in store purchases starting at $35

Monthly Payments 

• Pay monthly with terms of 3 months to five years 
• No fees 
• Interest ranging from 0-36% 
• Available for online and in store purchases up to $20,000

There are other BNPL providers out there but I chose to highlight Affirm for one very important reason, they charge no fees, ever. They don’t even charge a late fee if you happen to miss a payment due to an unexpected expense. The credit approval process is simple, you can often apply right in the checkout lane. Future payments can be drafted automatically from your bank account, ensuring you stay on track. 

Paying cash is always going to be the best way to pay for anything; however, tapping into credit for large purchases is becoming a necessity. Using a BNPL as a layaway replacement may be a better option in order to avoid high interest credit card debt. 

Just remember: “Buy now, pay later” can be convenient, but “buy now, regret later” is a completely different financing program.