A layaway program is a tool pawn shops use for customer convenience. All or some of the store's items are temporarily sold at a fraction of their actual value to the customer. 

The shopper pays a small down payment fee with an agreement that the item will be paid off and returned in its original condition within thirty days.

The Advantages of a Layaway Program

Here are the main benefits of a layaway program:

Forced Savings

While some people are good at saving money, many find that they just don't have the discipline for it. With a layaway program, the shopper is forced to put money aside for each purchase. This helps build a healthy savings habit.

No Interest Rate

Pawn shops that use layaway programs don't charge interest. Since the money is held in a time-lock account or secured with the item, there's no risk to the store.

Comfortable Payments

Some people have trouble paying for big-ticket items all at once. Layaway programs are a helpful way to spread out payments. This way, the shopper can pay for the item over some time without spending too much money all at once. They can pay off everything in time to make the layaway purchase.

A Second Chance

Some people don't have the credit to borrow large amounts of money. A layaway plan is an alternative way to make significant purchases. If a good experience is had with a store, it's easier to negotiate terms of future purchases. This is especially helpful since many stores allow customers to use layaways for a second or third purchase.

The Disadvantages of a Layaway Program

Although there are many advantages to layaway plans, there are also downsides.

No Interest Means No Profit

As mentioned above, a pawn shop can't make money off of a layaway program. Most stores must pay a small fee to a third-party company that manages the program. The fee is used to cover administrative costs. This may mean that the layaway plan is as expensive as a loan.

Layaway Increases Risk

Since the store is not charging a high-interest rate, there's a greater risk that the customer won't pay off the loan. Stores that use layaway plans have to deal with a higher failure rate.

How Layaways Work

When customers place an item on layaway, the store holds the item and takes an advanced deposit. Upon obtaining the item, the store creates a promissory note, a legal contract that outlines the payment agreement.

Customers are locked into a thirty or sixty-day contract. During this time, they have the option to withdraw from the program. To do so, the item is returned to the store. The money held in the account is returned to the customer.

Some customers want the option of removing a specific item from an agreement. This is common for jewelry or other things that might need to be sized or returned for any other reason. The store will allow a "change order" to be made in these situations. This means that the customer can return the item and add one of equal or lesser value.

Why Use a Layaway Program?

Here are the main reasons to use a layaway program:

Customers with Bad Credit

Pawn shops that use layaway plans are usually willing to work with customers with bad credit. Stores know that getting financing through traditional means is challenging, so they're more willing to work with a shopper's financial situation.

No Credit Check

As mentioned above, bad credit is not as much of a factor when using a layaway program.

No Interest

Pawn shops that charge interest on their loans usually don't have layaway programs. If a store does allow layaway, it's typically in lieu of a loan. This means that the store is getting paid upfront.

Easier Payment Schedule

Because customers can pay a layaway program in small installments, making the payments is often much easier.

Are You Ready for a Layaway?

If you need to pay for something that's too expensive, shopping with a layaway program can be your best option. While many people choose to use banks, credit unions, or other loans to make large purchases, it's important to note the strong pros and weak cons of doing so.

In the end, if you have the chance to use a layaway program, it's probably a good idea.

River City Pawn is a trusted pawn shop in Leitchfield, KY. We offer a layaway program for various items. Get in touch with us!