Beware of Holiday Layaway Plans

With the economy in a slump, holiday shoppers will be turning to layaway plansin record numbers this year. They're being offered at big retailers, like Walmart, Best Buy and Toys R Us.

Though layaway sounds like a great idea in theory, it might not be the best option. Let us explain:

Layaway is an installment purchase plan. The buyer pays a percentage of the purchase price as a down payment, and then makes weekly deposits. When the item is paid off, the buyer can take it from the store.

There is no interest because there is no money borrowed. However, most stores charge a non-refundable fee. Walmart's layaway plan has a flat fee of $5, while Best Buy charges 5% of the purchase price. TJ Maxx charges both a $5 non-refundable fee and a $5 cancellation fee.

Though these fees seem small, they can actually be quite large. A $10 down payment and $5 layaway fee on a $100 item is the equivalent of 44% APR on a credit card, reports the Chicago Sun-Times. If you plan to have the money in a few weeks, credit might be a better choice.

There is also no federal layaway law governing these sorts of transactions. Some states and localities require a written agreement, but that's about as far as layaway laws go. So before you sign up for a layaway plan, ask the following questions:

• Are there any initiation or cancellation fees?
• Are those fees per-item or per-person?
• What is the down payment?
• Are fees and down payments refundable?
• What happens if you miss a payment?
• What if you decide you don't want the item?
• Can you take advantage of future sale prices?
• By when must the item be paid in full?

Don't let a layaway plan ruin your holiday season. Be prepared and be informed.

Related Resources:

• Retailers try to lure shoppers with layaways (CBS News)
• Pricing Disputes: You Pay the Lowest Marked Price(FindLaw's Common Law)
• Woman Sues Walmart for 2 Cents Over Sausages, and Wins $180(FindLaw's Legally Weird)