How Can Layaway Impact My Credit?
Layaway was once an extremely popular way for people to pay for more expensive items without having to take out a loan or a line of credit beforehand. As credit became more widely available and when credit became available to women, who were the primary shoppers for their households and may have previously used layaway for big purchases, it became a less popular option. However, many major retailers have brought back the layaway concept. Understanding what it is and if and when it can impact your credit score is an important part of financial literacy.
What Is a Layaway?
A customer who places a reservation on an item makes punctual payments on the item and then picks up the item from the business after the payments are completed. It is not a credit scheme because the buyer does not get the goods until all payments have been completed. It does, nevertheless, allow a buyer to acquire an item before paying the whole purchase price. Each shop would have its own layaway terms of service, along with any layaway costs, which should be fully specified in any layaway agreement.
Can layaway impact my credit?
In general, no. When you place products on layaway, stores normally do not conduct a hard credit search and do not record failure to fulfill payments to your credit. However, each store's layaway approach is unique, and it is critical to study the program's contract terms when entering into any layaway arrangements.
However, layaway may be a wasted opportunity to improve your credit. Using the holiday 2020 as an example, unless you decided to use a store's layaway program to purchase one of several highly-coveted PS5 game systems, you could've made your payments as soon as preorders were available and arranged your pickup of the scheme anywhere between the November 12th release date and Christmas Eve. You might alternatively have put the identical system on a lower borrowing card and made equal payments over the same time period. The rate of interest paid would have been low, possibly comparable to a store's layaway fee, and it would have contributed to the improvement of your credit score.
Is There a Downside to Layaway?
The true danger of layaway arises if you are unable to make the whole payment on the due date. In many cases, this means you'll lose the item; it's been re-shelved and is no longer reserved for you. If the thing was a "hot toy" for the festive season or another high-demand item, this might be a significant disadvantage. Stores, on the other hand, will normally reimburse you for whatever money you spent on the item, less any fees or non-refundable charges that they may impose for their layaway program.
Layaway may be a terrific option to make purchases, especially if your credit is poor or you are concerned about sticking to a Christmas budget if you use credit. Buying an item on layaway, meanwhile, does not help boost your credit score in the same way that regular credit card transactions do.