Amazon adds layaway as another installment payment option

Amazon has given its shoppers a new way to finance purchases that offers the perks of an installment plan without the hassle of fees.

Amazon recently unveiled Amazon Layaway, a new payment option that allows shoppers to put select items on hold and pay for them over the span of five installments without any associated fees or credit check. The plans can be started with any credit or debit card.

At checkout, buyers make an initial payment of 20% of the total purchase cost. The item is then reserved, and the price is locked in with the remaining balance paid off in monthly installments over the following four months.

If shoppers need to cancel the layaway plan or do not complete the payments, Amazon said it will refund all amounts that have been paid without service and cancellation fees.

"Layaway programs structured like Amazon's … reduce consumers' risk and provide predictability," Zachary Johnson, associate professor of decision sciences and marketing at Adelphi University, said. "Consumers benefit as they are able to pay off a future debt at a predetermined rate or, if life changes, cancel the purchase for a refund or pay off their products on layaway a bit faster.

"On the business side, Amazon benefits because its layaway program effectively provides it with no-interest loans sourced by consumers," he continued.

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Layaway vs. buy now, pay later

Layaway differs from buy now, pay later (BNPL), which has gained traction recently. 

"The advantage of Buy Now, Pay Later to consumers is the ability to receive purchases when needed, and there are typically no interest rates on these purchases," Ansley Hoke, a senior vice president of marketing at ScanSource, said. "However, with layaway, people are able to reserve products in advance and pay off the purchase over a set period of time, only receiving the product once it has been paid in full."

BNPL providers — such as Affirm, Klarna and Paypal — partner with retailers to allow shoppers the ability to pay off their purchases over multiple installments at checkout. These interest-free payments are generally due a few weeks after the purchase. However, missed payments can result in late fees and other penalties. 

Layaway is among a growing list of flexible payment methods that Amazon currently has. The retailer already offers monthly payments, which is a BNPL-like program, as a checkout option for some items. Although the program requires no credit check and is not reported to the credit bureaus, the retailer said it determines eligibility based on the customer's purchase history with Amazon.com. Unlike layaway, the consumer must link to a valid credit card to make the scheduled payments. 

Amazon also offers its customers a BNPL option through its partnership with Affirm. The option requires a credit check and, based on that, the consumer will be charged a finance fee, which may be an annual percentage rate (APR) of anywhere between 10% to 30%. 

"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 credit scores now have an option to split up large purchases," Patrick Haggerty, a BNPL expert and the director at regulatory advisory firm, Klaros, said. "The catch is that the customer has to wait until they've made all payments before they receive the goods. This won't appeal to everybody, but for Amazon and other retailers looking to boost sales, it's good to provide options."

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Flexible payment options could draw consumers during hard times

Experts have said that recession concerns and inflation are driving the consumer demand for more choice when it comes to flexible payment options. 

Financing options that allow for installment payments, like layaway and BNPL, can be a draw for shoppers who may not qualify for other forms of credit. These options can also be a draw for shoppers in an inflationary or challenging economic environment.  

"For consumers, one reason layaway and BNPL are increasing in popularity is that it provides financial inclusion for people who don't have access to credit cards or any other sources of traditional loans," Vipin Porwal, CEO and founder at Smarty, said. "Many programs also come without the interest rate for a certain timeframe. So, it can be a very good tool to purchase items that one wants to acquire right away while they work out issues with their finances as it relates to inflation."

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