Since 2013, major cell phone carriers have been abandoning the industry-standard two-year contract and offering contract-free plans, decoupling phone purchases from data plans. It started with T-Mobile and, most recently, Verizon announced it is discontinuing the contract and instead, marketing a monthly plan with data-based pricing.
Not being locked into a contract is, in many ways, a welcome shift as it puts more control into the hands of the consumer. No more expensive early termination fees. No more feeling stuck.
It also allows for a more transparent marketplace. You now know exactly what you’re paying for. This may also create more competition in the marketplace, which ultimately yields better deals for consumers.
For now, prepare for sticker shock, as the price of the phone is now being decoupled from the price of the plan (in the past the cost of the phone was subsidized by the monthly fee). The list price of a new iPhone 6s, for example, is $650.
What are the options for buying a new iPhone?
You can buy in full, pay overtime or lease. Taking a look at the four major carriers:
At Verizon & AT&T, you can pay for the phone upfront or pay for it in installments and your monthly bill will include your data plan fee and an installment towards the cost of the phone. Once you’re done paying for the phone, the installment stops and going forward you only pay for the service. If you leave before the phone’s paid up, the remaining cost is due in full right away.
Sprint and T-Mobile will let you lease the phone and after the terms are complete you can trade it in for a newer model.
And at Apple, you can buy the new iPhone 6s for about $32 a month with the option to upgrade every 12 months for no additional cost. The phone comes unlocked so you can choose your own carrier to supply the data plan. Plus, you get AppleCare for free, a $129 value.
Should I buy the phone outright?
Going on a two-year payment plan or leasing a phone may be better if you’re on a budget and don’t want to fork over $650 for a new iPhone.
But if you can afford it, it may be best to pay for the phone in full. This gives you the flexibility to leave the carrier if you’re not satisfied at any time. And even if you’re someone who’s going to lust after the next new phone in a year, because you own the phone you can often sell it online and earn some of your money back. At Gazelle.com, where you can sell pre-owned devices and gadgets, you could earn up to $350 for a used 16GB iPhone 6, and that could be more affordable than leasing the phone or going on a payment plan.
Should you drop your current contract and buy one of the new plans?
I’m in this camp. My cell plan is up for renewal this fall. There’s no harm in shopping around. And in some cases, I may be able to trade in my phone and earn the new iPhone 6 for a fraction of the cost.
Even if you’re in the beginning or middle of a two-year plan, some carriers are offering to pay your early termination fee for jumping ship. So, it’s a smart time for all to stop and review their options.