Amazon adds layaway as another installment payment option

Amazon has offered its shoppers a new way to fund their purchases that offers the benefits of an installment plan without the hassle of fees.

Amazon recently unveiled Amazon Layaway, a new payment option that allows shoppers to put certain items on hold and pay for them in five installments with no associated fees or credit checks. Plans can be started with any credit or debit card.

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

If buyers need to cancel the layaway plan or fail to make payments, Amazon said it will refund all amounts paid without service and cancellation fees.

“Structured layaway programs like Amazon’s…reduce consumer risk and provide predictability,” said Zachary Johnson, associate professor of decision science and marketing at Adelphi University. “Consumers benefit because they are able to pay off future debt at a pre-determined rate or, if life changes, cancel the purchase for a refund or pay off their layaway products a little faster.

“Business-wise, Amazon benefits because its layaway program effectively provides it with interest-free loans taken out by consumers,” he continued.

Amazon created the program in response to customer demand for a year-round online payment option that doesn’t require credit checks and has no hidden interest or fees, according to a person familiar with. the program. .

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Layaway vs. buy now, pay later

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

“The benefit of Buy Now, Pay Later for consumers is the ability to receive purchases when needed, and there’s generally no interest rate on those purchases,” said Ansley Hoke, vice president. senior president of marketing at ScanSource. “However, with layaway, people can reserve products in advance and refund the purchase over a period of time, only receiving the product once it has been paid for in full.”

BNPL suppliers – such as Affirm, Klarna and Paypal – partner with retailers to allow shoppers to pay for their purchases in 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 part of 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 payment option for certain items. Although the program does not require a credit check and is not reported to credit bureaus, the retailer said it determines eligibility based on a customer’s purchase history with Amazon.com. Unlike layaway, the consumer must link to a valid credit card to make scheduled payments.

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

“By offering a more traditional layaway program, Amazon customers who don’t want or don’t qualify for credit and don’t want to risk their credit rating now have the ability to split large purchases,” Patrick Haggerty, a BNPL said expert and director of regulatory consultancy firm, Klaros. “The catch is that the customer has to wait until they’ve made all the payments before they receive the merchandise. This won’t appeal to everyone, but for Amazon and other retailers looking to increase sales, it good to offer options.”

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Flexible payment options could appeal to consumers in tough times

Experts said recession and inflation concerns are driving consumer demand for more choice in flexible payment options.

Financing options that allow installment payments, such as layaway and BNPL, can attract buyers who may not qualify for other forms of credit. These options may also attract buyers in an inflationary or difficult economic environment.

“For consumers, one of the reasons layaway and BNPL are growing in popularity is that it provides financial inclusion for people who don’t have access to credit cards or any other source of traditional loans. “said Vipin Porwal, CEO and Founder of Smarty. “Many programs also come with no interest rate for a certain period of time, so it can be a great tool for buying items that one wants to acquire right away while they work out issues with their finances right now. about inflation.”

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