Holiday Staffer Marie McBride, center, helps Diron Binson (cq), right, as James Baker Walks away Wednesday, Dec. 15, 2010 at Kma
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 (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 The Motley Fool owns shares of Try any of our newsletter services free for 30 days.

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Here's a good rule of thumb: If you have to put something on layaway, you can't afford it. It's as simple as that.

November 19 2013 at 4:41 AM Report abuse rate up rate down Reply
Paul Fitzpatrick

The comments on the article are quite interesting. I operate whose core business is based on layaway. No whilst some of your comments are true, there is still one prevailing factor - some people simply need a way to pay off goods due to financial issues, income pressures, etc.
Whilst we do charge a higher cancellation fee (which is simply because we are a start-up and we do not have volume yet) we do not charge interest, no upfront fees, no blackout dates and the payment plans are far more flexible. We like to differentiate ourselves from the likes of Kmart, Walmart, etc. and give consumers more choice and control around their payment arrangements.

November 19 2013 at 3:08 AM Report abuse rate up rate down Reply

So don't cancel it. Pay it off then walk to the front of the store and return it. Simple.

November 19 2013 at 2:19 AM Report abuse rate up rate down Reply

What a ridiculous article. No charges if you pay it off in reasonable time, as stated. One has a promotional charge which is a nominal amount you can easily spend anyway. The writer makes a big deal figuring out huge interest rates IF YOU DON'T BUY the product. Whole diffferent deal. The costs are pretty nominal even if you cancel.

November 19 2013 at 12:46 AM Report abuse rate up rate down Reply

Remember by using layaway you are taking money out of the pockets of the Banksters.

November 18 2013 at 11:42 PM Report abuse +2 rate up rate down Reply
Carol Downs

TThere is No Interest charged on a layaway. Someone needs to check their facts before posting false statements. Its a sad state of affairs when someone tries to ruin the livelihood of the people that work doing these jobs by lying to get people not to patronise these stores.

November 18 2013 at 9:09 PM Report abuse +3 rate up rate down Reply
1 reply to Carol Downs's comment

There's no charge at all if you finish paying it off. They take the item off the shelve, what if it ends up not selling after you abandon it? Typical liberal complains about a fee for that, yeah they should do it for free. As if the writer here didn't get paid for their drivel.


November 18 2013 at 10:18 PM Report abuse +1 rate up rate down Reply

Years ago layaway plans helped people buy merchadise and pay it off as they were able, but in advance of taking possession. Now, is it supposed to be better to charge it to a Visa or other card and make payments plus interest, hoping the item lasts until it is paid for, although there is not much way of actually knowing when a specific item has been paid for.

November 18 2013 at 8:48 PM Report abuse +2 rate up rate down Reply

Another off the wall B.S. story.....
If you do not have get the shaft from left,,,,,,if you do have get the shaft...
go to the stores and look at all the low,,middle class that use the service...

November 18 2013 at 6:22 PM Report abuse -1 rate up rate down Reply
Laurie Furman

What a dumb article. Even if you cancel the layaway and get hit with the cancellation fee, it's a ONE TIME fee so the so-called annual effective interest rate is really imaginary. It's not as though you keep paying interest on the cancellation fee!

November 18 2013 at 4:52 PM Report abuse +8 rate up rate down Reply
1 reply to Laurie Furman's comment

Typical liberal spin.


November 18 2013 at 10:16 PM Report abuse rate up rate down Reply
1 reply to marcanagnos's comment

And exactly WHERE did you read any "liberalism" in this?

November 19 2013 at 4:57 AM Report abuse rate up rate down

Did the author ever consider some people have no other way buying items? Just wondering.

November 18 2013 at 4:18 PM Report abuse +9 rate up rate down Reply