[Voice of Kristin Arnold, Bankrate.com reporter]
Intro: Layaway is making its way back into stores this holiday season. Cash-strapped consumers are looking for ways to pay for gifts without running up their credit card balances.
(MOS interview: "Trying to avoid credit cards, so any kind of layaway without an interest would be appealing.")
Take VO: Although layaway may look like a viable alternative to credit cards, it can actually cost consumers more in certain circumstances.
The credit crunch has many consumers in a headlock, with lowered credit limits, no credit at all or trying to avoid credit card debt altogether. Major retailers - Best Buy, Kmart, Toys "R" Us, and Walmart, to name a few, are all offering their own layaway plans to lure holiday shoppers. But, before you start laying away merchandise - make sure you weigh the costs.
Typically, when you put an item on layaway, you put down a deposit of 10-15 percent of the items cost - plus a service fee of $5 to $10 dollars. You'll then make regular payments over an eight to 12 week period until the item is paid-in-full. While the service charge may seem harmless, it can be deceiving.
SOT: Greg McBride, Senior Financial Analyst
("Depending upon the interest rate and the amount of the purchase, the finance charges on a credit card may actually be lower than the layaway service charge, if you pay it off over the same period of time. For a $200 purchase on a credit card at 12% interest, the finance charges are actually lower than the layaway fee, if you pay it off by the end of the second month.")
(Take full page calculation)
Continue VO: Also keep in mind that if you decide not to continue with your layaway contract, cancellation fees apply.
And in many cases, layaway locks you in to pay full price for an item that may go on sale during the 8 to 12 weeks it's sitting in layaway. Usually, customers can receive only one price adjustment on items within 7 to 30 days of the initial layaway date - with some retailers excluding clearance items altogether.
SOT: Greg McBride
("The appeal of layaway is that it forces you to pay off the item over a period of about eight weeks and that prevents a debt from lingering.")
TAG: To learn more about layaway and other payment options, visit Bankrate.com. I'm Kristin Arnold.