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Should you use Layaway or Buy Now Pay Later services this season?

Posted at 5:22 AM, Dec 02, 2021
and last updated 2021-12-02 08:22:26-05

PHOENIX — Stretching your budget without breaking the bank, it's something a lot of us try to do during the holiday season.

This year there are more options than ever when it comes to how you pay, so how can you protect your money.

"It's sort of a relic of holiday shopping at this point," said Lisa Rowan, a Consumer Finance Expert with Forbes Advisor.

She's talking about layaway. It was offered at major retailers, especially during the holidays. You put down a deposit for an item you want to buy and make payments over time. You took home the item at the end while paying extra fees along the way.

Rowan says the overhead forced many stores to find new alternatives.

"There's a lot of work for the retailer to you have to store the item while someone's making payments. You have to facilitate all those payments at your layaway counter and keep track," said Rowan.

Those new alternatives are known as buy now, pay later services. In most cases, you find an item, pay 25% of the cost and get the item now. Then you pay the rest in three installments every two weeks. It's a benefit for those who may not have the best credit.

"They automatically hook up to your bank account," said Rowan.

For platforms like PayPal, AfterPay, and Klarna, there is often no credit check or interest charged. However, Rowan says, unlike layaway, miss a payment, and your credit score could be impacted.

"It could be harder to get other credit options. And if you have a delinquent account or miss more than a few payments, you're probably going to get cut off from that BNPL platform," said Rowan.

Deciding what option to use really depends on where you're shopping.

Layaway is restricted to a single store and often has to be done in person - like Burlington's Layaway service. You also have to pay a $5.00 service fee on top of the 20% downpayment. Also, if you decide you no longer want the items they charge a $10 cancellation fee.

Meanwhile, with buy now, pay later sites like Afterpay allow you to shop online or in-store at thousands of retailers. There are no service fees or interest, only an initial payment of 25% of the purchase price.

Plus, if you return an item, they work with the retailer to make sure you get your money back.

A lot to think about this holiday season.