Amazon has given its shoppers a new way to finance purchases that offers the benefits of an installment plan without the pesky fees.
Amazon recently introduced Amazon Layaway, a new payment option that allows shoppers to put selected items on hold and pay for them over a period of five installments with no associated fees or credit check. The plans can be started with any credit or debit card.
At checkout, buyers pay a deposit equal to 20% of the total purchase price. The item is then reserved, the price fixed and the remaining amount paid out in monthly installments over the following four months.
If buyers have to cancel the layaway plan or fail to complete payments, Amazon will refund any amounts paid excluding service and cancellation fees.
“Layaway programs structured like Amazon’s … reduce consumer risk and provide predictability,” said Zachary Johnson, associate professor of decision science and marketing at Adelphi University. “Consumers benefit by being able to pay off a future debt at a predetermined rate or, when life changes, cancel for a refund or pay off their stocked products a little faster.
“On the business side, Amazon benefits because its layaway program effectively provides it with interest-free loans drawn by consumers,” he continued.
According to a person familiar with the program, Amazon created the program in response to customer demand for a year-round online pay-over-time payment option that doesn’t require a credit check and has no interest or hidden fees.
A personal loan can be another option to help you finance a large purchase or project. Credible makes it easy to see your pre-qualified personal loan installments from different lenders in one place.
Temporary storage vs. buy now, pay later
Layaway is distinct from Buy now, pay later (BNPL), which has recently gained traction.
“The benefit of Buy Now, Pay Later for consumers is the ability to get purchases when they need them, and there are typically no interest rates on those purchases,” said Ansley Hoke, ScanSource’s senior vice president of marketing. “However, with Layaway, people can reserve products in advance and pay for the purchase over a set period of time, not receiving the product until it has been paid for in full.”
BNPL providers – like Affirm, Klarna and Paypal – are working with retailers to give shoppers the option to pay for their purchases in multiple installments at checkout. These interest-free payments are usually due a few weeks after purchase. However, missed payments may result in late fees and other penalties.
Layaway is one of a growing list of flexible payment methods currently offered by Amazon. The retailer already offers monthly payments, a BNPL-like program, as a checkout option for some items. Although the program doesn’t require a credit check and isn’t reported to credit bureaus, the retailer said it determines eligibility based on the customer’s purchase history on Amazon.com. Unlike layaway, the consumer must connect to a valid credit card to make scheduled payments.
Amazon also offers a BNPL option to its customers through its partnership with Affirm. The option requires a credit check, and based on that, the consumer is charged a financing fee, which can range from 10% to 30% annual percentage rate (APR).
“By offering a more traditional layaway program, Amazon customers who either don’t want or don’t qualify for credit and don’t want to risk their creditworthiness now have the option to split large purchases,” said Patrick Haggerty, a BNPL expert and the director of regulatory consulting firm Klaros, said. “The catch is that the customer has to wait until they have made all the payments before receiving the goods. Not everyone will like that, but for Amazon and other retailers looking to increase sales, it’s good to have options.”
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Flexible payment options could attract consumers in tough times
Experts have said recession concerns and inflation are driving consumer demand for more choice in flexible payment options.
Financing options that allow for installment payments, such as layaway and BNPL, can be attractive to buyers who may not qualify for other forms of credit. These options can also be attractive to buyers in an inflationary or difficult economic environment.
“One of the reasons why layaway and BNPL are gaining popularity among consumers is that they offer financial inclusion to people who don’t have access to credit cards or other traditional sources of credit,” said Vipin Porwal, CEO and founder of Smarty. “Many programs can do without an interest rate for a certain period of time. Therefore, it can be a very good tool to buy items that you want to acquire immediately while solving problems with their finances related to inflation.”
If you are financially strapped, you can take out a personal loan to pay off debt at a lower interest rate. Visit Credible to find your personalized interest rate without hurting your credit score.
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