What is layaway and how does it work?

Layaway allows a customer to purchase an item with a down payment and then pay the remaining amount in installments while the store holds it for them. Once it’s paid for in full, the customer takes the item home. 

Here’s a scenario where a layaway plan may come into play: You’ve been looking for a new TV, and you find one you like—but you’re not ready to immediately pay full price to cover the cost. Then you see the store offers an option to hold the item and let you pay for it over time.

Read on to learn more about layaway and other ways to finance big purchases.

What you’ll learn:

• Layaway allows customers to split up payments on items that a retailer puts on hold until the merchandise has been paid in full.

• The specific terms of a layaway plan can vary depending on the retailer, so it’s important to read the layaway policy.

• Layaway isn’t as popular as it used to be, but there are still retailers that offer it.

• There are alternatives to layaway plans—like credit cards and buy now, pay later loans.

Layaway means a customer can put a deposit on an item—like furniture or a computer—that the seller holds, typically in a store. The customer makes installment payments on it over time and can then pick up the item once the balance has been paid in full. 

Layaway originated during the Great Depression. After credit cards became more popular in the 1980s, layaway usage started to dwindle. Some retailers still offer layaway, but alternatives like buy now, pay later (BNPL) are becoming more common.

Layaway can work differently from retailer to retailer, but here are the typical steps in the process:

• Review the layaway policy. Some stores add service, storage or layaway fees to the merchandise’s price. And not all items are eligible for layaway. That’s why it’s important to read through the terms and conditions before signing a layaway agreement. 

• Make a down payment. After selecting your item, you’ll typically put a deposit on it—either a percentage of the total price or a set dollar amount. 

• Choose terms and make payments. The remainder of the balance can be paid in the store or online in intervals—for example, weekly, biweekly or monthly—depending on the retailer. Other stores may require the balance to be paid in full within a set period of time rather than in intervals. Keep in mind, some retailers offer a grace period for missed payments, but it can vary. 

• Pick up the item. Once the payments have been completed, the customer can pick up the item and take it home. 

If the customer decides to cancel the layaway payment plan, the policies can range from store to store. For example, some retailers will offer a full refund of the amount paid toward the item. Other retailers may offer a refund minus any service and cancellation fees.

Even though other types of financing have replaced layaway options at many stores, there are still some large and small retailers—both in-store and online—that offer it. Keep in mind that layaway programs could change or only be offered at select stores, so it’s a good idea to check with the retailers directly.

Certain retailers also offer online layaway programs. Customers still make payments in intervals until the balance is paid in full, but they don’t have to visit the store. The merchandise might be at a warehouse or distribution center—and that may allow the customer to avoid paying storage fees. 

Once the merchandise has been paid for, the customer can pick it up from the retailer’s warehouse or distribution center or have it shipped to them.

Like anything, layaway has its pros and cons. Learning about some of them can help you determine whether layaway is right for you.

Some of the benefits of layaway include:

• Payment flexibility: Layaway gives consumers the option to purchase an item that they may not have the up-front cash for. 

• No interest: Purchases made through a layaway plan typically aren’t subject to interest.

• No credit check: A credit check usually isn’t required with layaway. This can be helpful for those working toward improving their credit score.

• No negative credit impact: Because layaway arrangements aren’t typically on a customer’s credit report, a missed payment generally won’t impact their credit score negatively like it could with a credit card.

• Longer terms: Layaway plans can have longer terms than BNPLs, giving the customer more time to pay off the balance.

There are some downsides to a layaway program, too, including:

• Wait times: The customer doesn’t get to take the merchandise home immediately.

• Exclusions: Some stores have exclusions and limitations on items eligible for layaway.

• Not widely available: Layaway isn’t as widespread as other payment arrangements. This means it could be difficult to find stores that still offer it.

• No positive credit impact: On-time payments usually won’t positively impact a customer’s credit score like they can with a credit card.

• Partial refunds: A retailer may charge a fee if the customer cancels during the layaway plan.

• Potential fees: Stores may charge service, storage or layaway fees in addition to the merchandise’s price.

If layaway isn’t right for you—or it isn’t offered—there are other options.

Like layaway, using a credit card is a way to finance the purchase of big-ticket items. One of the main differences between these types of payment options is that when a customer uses a credit card to make a purchase, they can bring the item home immediately. And buying merchandise with a credit card doesn’t require the down payment that a layaway plan does.

But there are other things to consider when using a credit card. Once an item is purchased, it shows up on the account balance. Depending on how that balance is paid off could determine whether interest is charged to the account. If possible, you should pay your balance in full every month to avoid interest charges. Or you can consider applying for a credit card with a 0% introductory APR to make a large purchase with no interest for a specified period. 

Using a card could affect a person’s credit scores, too. Buying something that maxes out a credit card may have negative impacts. On the other hand, making on-time payments each month is one responsible habit that could positively impact credit scores. 

If you don’t have a credit card, you can learn more about how credit card applications work before you apply.

BNPL allows customers to finance an item on a typically short-term, interest-free basis. Unlike with layaway, the customer can immediately take the item home. The customer then makes payments directly to the BNPL service provider until the balance is paid off. 

Similar to layaway, BNPL programs typically don’t require a hard credit check. But missed payments can negatively impact a customer’s credit report—and result in additional charges.

You could always wait until you have enough money to purchase your item. You might avoid things like layaway fees and spending more than you can afford. 

If you’re looking for ways to start saving, it might be worth taking a look at your expenses and figuring out what you can cut.

If you’re curious to know more about layaway plans, here are answers to some common questions:

If you don’t mind waiting to bring your new merchandise home, layaway could be one way to finance payments for a big-ticket item. Just make sure you understand the layaway terms the retailer offers. 

And you can consider other options, too. If you’re new to credit, explore fair and building credit cards that can help you build healthy credit scores with responsible use. Or compare all Capital One credit cards to find one that’s right for you—whether you’re interested in a low intro rate or searching for a card with great rewards. You can even see if you’re pre-approved for certain card offers without impacting your credit.