Should You Finance Your Next Smartphone?

Cell phone providers are shifting their business model away from subsidizing consumers’ smartphones toward financing plans. Is smartphone financing right for you?

Wireless carriers are increasingly shifting their business models away from subsidizing smartphone purchases. Carriers now require customers to pay the full price of a smartphone, or more likely, join a monthly finance plan to pay for the cost of a smartphone.

Once you pass a certain threshold in a payment plan, you can turn in that phone for an upgrade and start over with a new financing plan. The details of plans vary by provider, but they’re growing quickly in popularity, with nearly a quarter of smartphone buyers financing their purchases.

AT&T Next allows consumers to spread the cost of a smartphone over 20 to 24 interest-free monthly payments, with the opportunity to get a new phone (and restart the financing plan) after 12 or 18 months, respectively. Verizon device payments lets buyers pay for a device over 24 months, with an option to upgrade to a new device and payment plan once they’ve paid off the first phone’s value. T-Mobile and Sprint have similar plans.

Who it’s good for: Anyone who likes to have the newest phone. Since they’re now typically offered without a contract (you pay a monthly fee for text, voice and data service), financed smartphone plans offer users the ability to upgrade more often than a typical two-year agreement. The total cost of financing with a plan is likely cheaper over time than getting a subsidized phone with a contract, especially for consumers who upgrade frequently.

Who should think twice: Users who don’t want or need the newest phone, or those who are likely to break or lose it. Even if it’s lost, you’re still on the hook for the full cost of the device. Most carriers also offer contract-free plans to consumers who bring their own devices. Rather than paying for a pricey new phone (even in installments, starts at $649), bringing an older model or a used device is an easy way to keep costs down. Monthly service without the cost of the phone bundled in is much cheaper and the best deal.

Soon you may not have a choice on whether or not to finance your phone. Verizon announced this week that it would be eliminating subsidized phones and contracts entirely, a move T-Mobile made back in 2012. AT&T has plans to follow suit. Lucky for consumers who suddenly aren’t able to afford a new device or would rather spend that money elsewhere, they can buy more affordable, certified devices at Gazelle.

Will you finance your next phone purchase?


Image Courtesy of Wikimedia.



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