Layaway Finance: A Loan for All Seasons
Retail giant Wal-Mart announced today that it is bringing back layaway for the holiday season. Customers will be able to pay a small fee and make a down payment, and then have up to two months to pay off the balance of the item in full before being able to take the item out of the store.
Why am I unable to make a car purchase on layaway? More specifically, why am I unable to lock in a low rate for a car loan now, even though I might not be in the market for a car loan for a year or more? I’d be happy to pay a small fee to lock in a lower interest rate, provided that my credit score not noticeably change between now and when I’m ready to make my purchase.
Financial institutions could offer rates that were slightly higher than what they offer for immediate purchase and be able to get a better idea of what their future loan volumes will look like.
Like Wal-Mart, there would be a cancellation fee charged if I opted not to make good on the purchase.
Knowing that they could get a good deal on their loan would probably get a large number of people off the couch and into a local dealership. It may even spur people who were planning a future purchase to buy sooner.
Such a program would throw banks’ hedging models into full freak-out mode, but it’s likely that a program could be developed that covered the interest rate risk created by offering such a loan.
There may even be a public service angle to offering such a loan program. By locking in a low rate now, I would be more likely to keep my credit clean so as to not ruin my chances of making good on my purchase when I am ready to buy a new car.
It’s not often that auto lenders get to take cues from the retail world. But layaway has been around for a long time, and if it works for buying a couch, it should work for buying a sedan.
