Holiday Staffer Marie McBride, center, helps Diron Binson (cq), right, as James Baker Walks away Wednesday, Dec. 15, 2010 at Kma
Alamy
It's that time of year again ... the time when everyone remembers how ill-prepared they are to buy gifts for everyone on their holiday shopping list.

For some, that means it's time to take advantage of major retailers' layaway plans. This option gives you the peace of mind that your gift will be there when you need it -- and enables you to spread your costs out over a manageable time period.

Even Consumer Reports senior editor Tod Marks is an advocate of layaway. He tells CNBC that "the fees, if any, are generally nominal," that "you don't have to worry that the store will run out of an item you want," and that it's a good way to "help restrain impulsive buyers."

Some retailers (looking at you, Walmart) go so far as to advertise that layaway "is a terrific way to save on the products you want."

But is all of this really true? Is layaway actually a good deal?

As Always, Pay Attention to the Fine Print

Two decades ago, when shopping on websites like Amazon.com (AMZN) wasn't yet an option, layaway made more strategic sense: It guaranteed that a hot-ticket item you wanted didn't get purchased by someone else before you had the funds.

But today, even the most popular gifts can easily be located with a little searching around online. So the fear of missing out on a gift is less of a valid excuse. (That said, you may not find it at the promotional price that was advertised at the time. Then again, you weren't prepared to buy it outright at that price in the first place.)

Which brings us to the financial side of the transaction. And that's where things begin to get iffy.

Most of the major retailers have eliminated their upfront "service" fees for this holiday season, including Walmart (WMT), Sears (SHLD), and Toys R Us. Obviously, this makes the program easy to advertise -- and, no doubt, lures more customers into this offer. But, as the info I've compiled below makes clear, it's often what they don't advertise that can really bite buyers:

Walmart Sears Toys R Us Burlington
Deposit Required $10 or $10% (whichever is greater) $20 or 20% (whichever is greater) 10% 20%, + a $5 fee refunded on a "promotional card" if you pay balance by Dec. 24.
Payment Plan At buyer's discretion, must be completed by Dec. 13 Every two weeks; must be completed after eight weeks. 20% within 15 days; 30% within 30 days; 40% within 45 days; 50% within 60 days; 60% within 75 days -- for holidays, item must be paid in full by Dec. 15. At buyer's discretion, must be completed by Dec. 24
Cancellation Fee $10 $15 $10 $10
Refund Policy You are refunded total payments made, less cancellation fee. You are refunded total payments made, less cancellation fee. You are refunded total payments made, less cancellation fee. You are refunded total payments made, less cancellation fee -- on a store gift card
Effective Annual Interest Rate on $50 Item -- If Not Purchased 240% 360% 240% 240%
Effective Annual Interest Rate on $100 Item -- If Not Purchased 120% 180% 120% 120%

As you can see, unless you follow the terms of the layaway contract perfectly, the deal is not as sweet as you might assume from the advertising. Just look at Burlington's refund policy -- yeah, you'll get your money back if you cancel. But it will be on a gift card that you have to spend at their store.

There's No Free Lunch in Layaway Land

If nothing else, let your one takeaway be those interest rates. Remember, that's the annualized rate for a "loan" on an item you didn't even end up taking home.

So despite all the fanfare and advertising that makes layaway out to be a good deal -- don't fall for the gimmick. As one Cornell professor bluntly puts it in a New York Times op-ed, layaway "isn't a signal that consumers have more choice. It's a signal that in today's cruel economy, there's no choice left."

Motley Fool contributor Adam Wiederman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our newsletter services free for 30 days.

Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »