When Walmart announced that it was ending its layaway program for the majority of its store categories in favor of a buy now, pay later format, social media users expressed confusion and sadness with nostalgia tweets.
Retail experts and financial loan providers aren’t surprised by the change. In fact, some even say that buying now, paying later is the new layaway.
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“Consumers increasingly want to be able to take their purchase home right away and then pay for it in installments,” Floris de Kort of Xplor Technologies told FOX Business. “Buy now, pay later means they can do just that and they no longer have to wait until their purchase is fully paid for before discovering their product or service. “
Walmart has partnered with Affirm to launch its Buy Now, Pay Later financing program. Other big box retailers like Target and Macy’s have partnered with competing financial loan providers, including AfterPay and Klarna.
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|AFRM||AFFIRM PARTICIPATIONS||132.75||+5.14||+ 4.03%|
|AFTPY||AFTER PAYMENT||79.28||+2.34||+ 3.04%|
Customers who make purchases through these third-party lenders usually get their items interest-free, as long as the items are refunded before the end of the promotional period.
“Often, [buy now, pay later] involves four equal payments made every two weeks until the loan is paid off, “said Matt Schulz, chief credit analyst at LendingTree.” Buy now and pay later loans also include overdraft financing. long term offered at the point of sale. Depending on the size of the purchase, the length of terms can range from 3 to 24 months, paid monthly. Unlike “pay in 4” loans, these loans usually include interest and the rates can be as high as 30%. “
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Consumers will have to pay a fee if they are late (even once) or miss a payment. It’s also added to your credit report, lowering your overall credit score, according to Howard Dvorkin, CPA and president of Debt.com.
Dvorkin said all vendors buy now, pay later are not the same, and may offer different rates and terms.
Retailers benefit from the buy now, pay later model because stores immediately receive payments from the third-party provider. The credit institution, on the other hand, also assumes the credit risk.
“With layaway [retailers] were forced to remove an item from inventory without promising that the buyer would end up paying in full, ”said Deanna Traa, director of marketing at Bold Commerce.
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“Most consumers under 40 don’t even know what a layaway is, buy now, pay later (BNPL) is all they know,” she continued. “We have seen increased adoption of BNPL among consumers over the past two years, and it will soon become as common as credit cards, while layaway has become a payment option of the past.”
A recent GoCardless consumer survey found that 75% of Americans find layaway unnecessary. Meanwhile, four in ten people have “no idea” what the layaway is. That number climbs to nearly six in 10 targeting Gen Z shoppers.
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Layaway programs were created in the 1930s during the Great Depression, and the buying model experienced a rise and fall throughout the 20th century. Even though layaway is not as common as it used to be, the shopping program still exists at some chain stores including K-Mart, Sears, Big Lots, and Burlington Coat Factory.
“Buy now, pay later are basically just newer, evolved versions of long-standing credit offers such as layaway, retailers just found a way to refresh the approach for this century,” he said. said Jonathan Treiber, CEO of RevTrax. “Layaway still exists and, along with other point-of-sale lending options, it tends to reappear during times of consumer need, such as the 2008 financial crisis and the economic downturn of the year. last during the pandemic. “