CHARLOTTE, N.C.,None — With credit cards maxed out, canceled or put away, many consumers are using layaway for their Christmas shopping, but Action 9's Don Griffin said layaway fees can be worse than using a credit card.
Silesia Caldwell is shopping for a bicycle for her daughter this Christmas, but she won't pay for it all at once.
"I'm going to use layaway," Caldwell said.
Stores like Kmart, Walmart and Toys R Us are giving shoppers the option of placing merchandise on layaway.
The way it works is that shoppers make down payments and, depending on the store, that could be at least 10-25 percent of the purchase price with the balance in four payments.
But shoppers are also required to pay a nonrefundable service fee of $5.
Consumer experts say buying on a financial plan doesn't always make sense. Experts say a typical shopper would wind up paying far less interest using a credit card.
For example, a shopper buys $100 worth of toys on layaway, pays 10 percent down and takes two months to pay off the $90 balance. In effect, that $5 service fee is interest for a $90 loan.
That's the equivalent of a credit card with a 44 percent annual percentage rate, a level considered predatory.
And if you don't get your layaway out, you lose that $5 and more, said Kmart's John Bopp.
"You'll lose $10 on a layaway return to stock fee," Bopp said.
Despite the fees, layaway is still a wiser option for certain shoppers who don't want to run up debt on a credit card and then have trouble paying later.