You’re probably familiar with traditional layaway plans, which gave shoppers the opportunity to pay for purchases over time. They would make a down payment and then visit the store to make additional payments. But patience was required: The item didn’t come home until it was paid for in full.
But layaway plans faded in popularity with the widespread acceptance of consumer credit cards, which allow for payments over time and don’t force consumers to wait to enjoy their purchases. But paying with credit cards may mean paying interest – which can add up quickly.
Now, driven in large measure by millennial disdain for credit-card debt, layaway plans are making a comeback – in a new digital form.
The rise of digital layaway
Several URBN brands like Anthropologie, Free People, and Urban Outfitters are among the 1000 or so U.S. retailers who encourage shoppers to use an interest-free digital layaway platform for online purchases called Afterpay, which, unlike your grandparents’ layaway plan, combines instant gratification (your purchase is sent to you immediately) with the convenience of paying over time, with four equal payments due every two weeks.
Afterpay, along with competing deferred-payment services including Affirm, QuadPay, Uplift, and Klarna are capitalizing on a generational reluctance to embrace consumer credit the way their parents did.
According to Samantha Leach at Glamour, consumers have to be at least 18 years old and own a credit or debit card to be eligible to use Afterpay. She adds that first-time customers are typically given a $500 spending limit. Leach reports that millennials tend to use debit cards more than other forms of payment and that only about one in every three members of the generation owns a credit card.
“Experts say this could be a reaction to the 2008 recession – this age group is wary about getting in financial trouble – and overwhelming student loans,” she writes. Leach quotes Rebecca Liebman, co-founder and CEO of LearnLux, a digital platform that helps young adults make better financial decisions, as saying: “There’s an overall shift in millennials’ attitudes toward credit cards because of student debt (which 41 percent of them carry). A lot of people don’t want to get into even more debt, and that’s exactly what they associate credit cards with.”
A cautionary tale
But debt is debt, even if its incurred by something other than a credit card, which is why consumers need to take care when it comes to deferred-payment plans.
Afterpay represents a “shiny, sexy, millennial rebrand of old-school layaway plans,” according to Leach. Nevertheless, she urges potential customers to read the fine print before they start using it or similar services. “While the payments are interest-free, if you miss one installment, you’re charged $8 and your account will be frozen,” she writes. “Don’t pony up by the following week, they tack on another $8, until your fees hit 25 percent of your purchase.”
Rich Ramassini, senior vice president and director of sales and strategy at PNC Investments, quoted in a MarketWatch article, also advises caution but says in some cases these new-age layaway plans can help consumers.
“I generally advise people that if you can’t afford it, you can’t afford it,” he says. “The more creative you get in trying to purchase something out of your reach, the more you risk creating a long-term debt problem for yourself.” However, he notes three scenarios in which using a digital layaway plan might be the right financial move:
- If the item is in high demand and short supply
- If a monthly payment plan helps you budget better
- If the item you’re buying is a need, not a want