Retailers are trying to push layaway this holiday season as a way to buy stuff you don’t immediately have the money for. For people without available credit, this can be a way to eventually get what they can’t afford now. But NY Sen. Chuck Schumer is warning that layaway fees can add up to be a much higher interest rate than any credit card would be allowed to charge.
A Rock n’ Roll Elmo doll might incur a $5 fee for layaway and have a 10% down payment for one month. That’s like a credit card with a 100% APR, Senator Schumer said. Credit card APRs are capped at 30%.
“These layaway programs are nothing more than hideaways for sky-high interest rates that consumers would never tolerate with a credit card,” Schumer told the AP. “The holiday season is supposed to be about giving and not taking, but these layaway programs are taking advantage of people and charging them outrageous interest rates, under the guise of making it easier and more affordable to shop.”
If stores don’t start getting more up-front by displaying more clearly the total effective interest rates, Schumer has warned that he will get the FTC interested in investigating.
Consumer Reports recommends closely examining layaway terms before signing up. For instance, the item could get put back on the shelf if you miss a payment by more than 7 days and you might have to double your payment next time you come in.
Most of the time it’s best to only buy things you can afford to pay for in full and in cash on the spot. If you don’t have enough, save up or buy something cheaper. SNL clearly illustrated this maxim in their skit promoting a fake book called, “Don’t Buy Stuff You Can’t Afford.”