posted on: 11/9/2011 11:40:34 AM EST
This is How They Trick You
business, holiday, marketing, programs, credit cards, save money, recession, retailers, fee, sales, tips

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We all know it yet we still fall for it. Companies frequently use marketing ploys and tricks to gain our business. This holiday season is no exception. Retailers are bringing back a marketing ploy originally introduced in the 1950's.
Layaway programs. Before there were credit cards there were layaway programs. These plans allowed consumers to reserve items in the store and pay for them in installments.

As credit cards were introduced these programs became unnecessary and were phased out by most retailers. Since the current recession has tightened consumer credit and more people are having a hard time getting credit cards, retailers have brought back their layaway programs with a vengeance! The biggest retailers in the world have begun advertising their programs for the 2011 holiday season. Wal-Mart, Sears/K-mart, Toys 'R' Us, TJ Maxx, Best Buy, and Burlington Coat Factory currently offer layaway programs for their customers.

While on the surface these programs may seem appealing, they are actually marketing ploys retailers are using to get us to open up our wallets during a recession!
What these retailers aren't telling us are the downsides to their layaway programs. All of which will cost us more money!

I guess retailers don't want us to know about all the hidden fees attached to their programs. They hide them in the fine print so consumers like you and me are unaware! Every retailer charges a fee to enroll in their layaway program. These fees can range from $5 to five percent of the total purchase price. At first glance those numbers don't seem very high but take a look at this example to illustrate just how bad these programs are. Wal-Mart requires a $5 enrollment fee and a ten percent down payment for their layaway program. Say you put $100 worth of gifts on layaway. Under their terms you would be required to give them a $15 initial payment ($5 service fee plus $10 down payment) leaving you with a $90 balance to pay off over the course of eight weeks. Essentially you are getting a $90 loan for two months; the percentage you pay in service fees is equivalent to a 44 percent interest rate. The highest credit card interest rates typically run about 18-25 percent.

Retailers also leave out the fact that they charge cancellation fees. If you had purchased Grandma's gift with cash or a credit card you could return the gift to the store and get back all your money. It doesn't work like that when you put an item on layaway. All retailers charge a hefty cancellation fee of about $15. So you have to be absolutely sure all items you put on layaway are essential!

What's worse is that almost all layaway programs don't allow consumers to take advantage of sales! If you put an item on layaway and then it goes on sale you may still have to be the higher, original amount, not the new sales price.

If you miss a payment you could lose all the money you invested! With layaway programs consumers are asked to make periodic payments. If you miss a scheduled payment you may not be able to get back the money you've paid so far. At the very least they will charge you a non-refundable cancellation fee on top of the non-refundable service fee you've already paid. At best you'll get store credit or a gift card which means the retailer still gets to keep your money.

* Also, payments must be made in person at the retail store, so that means more frequent trips to the store and more temptation to buy additional items.

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Dennis Thorgesen   1551 day(s) ago
The best way to go is if you can't afford the whole price now either save until you can or choose something you can afford. As a corporation at 11% interest we are paying over $100 a month in interest. That is better than the 44% mentioned above.
Sam & Sara Knight   1551 day(s) ago
This is great, I dont a lot of people realize how tricky retailers can be. I really like how you touch on the missing out on sales too. Great job!

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