Layaway: Buy now and pay later. What are the pros and disadvantages?

American consumers would rather buy now and pay it later than use layaway programs during the holiday season

Walmart declared that it would end its layaway program for most store categories and instead offer a buy now/pay later format. Social media users shared their sadness with nostalgic Tweets.

The shift is not surprising to financial lenders and retail experts. Some even say that “buy now and pay later” is the new term for layaway.

“Consumers want to be able take home their purchase and then pay it off in installments,” Floris De Kort, Xplor Technologies told FOX Business. They can buy now and pay later, so they don’t have to wait until their purchase is complete before they can experience the product or service.

Affirm partnered Walmart to launch its buy now, and pay later financing program. Other large-box retailers, such as Target and Macy’s, have also partnered with financial lending providers like AfterPay and Klarna.

WHAT IS AFFAIR?

These third-party lenders offer a free of charge financing option to customers who purchase items. However, they must pay off the item before the end the promotional period.

“Often [buy now, repay later] involves four equal installments made every two weeks until the loan’s repayment,” stated Matt Schulz, chief credit analyst at . Longer-term financing is also available at the point where you purchase a “Buy Now, Pay Later” loan. The terms may be 3 to 24 months long, with monthly payments depending on the amount of the purchase. These loans are not like the ‘pay-in-4’ loans. They typically include interest, and rates as high as 30%.

If a consumer is late or fails to make a payment, they will be charged fees. Howard Dvorkin CPA, chairman of debt.com, states that it can also be added to your credit report.

Dvorkin stated that all providers of buy now, pay later are different and may offer different terms and rates.

The buy now, pay it later model is a benefit to retailers because they receive payments immediately from the third party servicer. On the other hand, the financial lending institution also takes on credit risk.

“With layaway [retailers] were made to take an item from inventory without any promise that the shopper would pay in full,” stated Deanna Traa (chief marketing officer at Bold Commerce).

She continued, “Most consumers below 40 don’t know what layaway is. Buy now, Pay later (BNPL), is all they know.” “We have seen a rise in BNPL adoption among consumers over the past few years. It will soon be as common as credit cards and will become a payment option like layaway.

A survey of consumers by GoCardless revealed that 75% consider layaway pointless. Four in ten Americans didn’t know what layaway was, according to reports. This number rises to almost six in ten when it comes to Gen Z shoppers.

Layaway programs were established in 1930s during Great Depression. The shopping model has seen a steady decline and rise throughout the 20th century. Layaway isn’t as common as it once was, but the shopping program can still be found in select chain stores, including K-Mart and Sears.

“Buy Now, Pay Later plans are basically just newer versions of long-standing credit options such as layaway. Retailers just found a way for them to refresh their approach for this century,” stated RevTraxCEO Jonathan Treiber. “Layaway is still available and it, like other point-of sale loan options, tends to resurge when consumers are in need, such as the 2008 financial crises and the economic downturn last year during the pandemic.