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When To Buy A Phone Outright vs On A Payment Plan

Whether or not you choose to purchase a phone outright or use a payment plan really depends on the type of person you are. For a lot of people, paying for the phone outright is simply the way to go, while others – who may be on a budget – will opt for the payment plan. There are a few factors to consider when asking the question of whether or not you should buy your phone outright or use a payment plan.

Smartphone dealers present three options for getting a new phone: financing, leasing, or paying outright. If your budget is tight, a payment plan can be a great option, but if you don’t want to manage another monthly payment, paying for the phone outright will better fit your needs.

Put simply, there are several options available to you if you want to get your hands on a smartphone, regardless of whether it’s an Apple or Android device (though payment plans on higher end models is more common on both sides of the spectrum). Questions you should ask yourself include how long you intend on holding your phone? Do you need the latest and greatest device? And how much cash do you have on hand?

Buying a Phone Outright is the Simplest Option

iPhone on Cash

Buying your smartphone – whether new or refurbished (our guide) – outright is the easiest to grasp conceptually. You buy it, it’s yours. This approach, psychologically, is the one we are most accustomed to, and this kind of ownership allows you to have clarity and simplicity of the financial situation. You spend the money today, it’s one, and you no longer have to worry about paying for the phone anymore.

The reality of this kind of ownership, and this regards all kinds of things, (but we’ll stick to smartphones), is that it doesn’t capture the device’s real path through the market, nor does it acknowledge our true relationship with our smartphone.

Smartphone sellers of all kinds are looking more towards a longer-term relationship with the buyer, and that means towards their services offered.

In fact, we will likely go through many smartphones throughout our lifetime, whether or not you want a new expensive model or a cheaper older model is something that may change for you over time, and is relevant to the decision to buy outright or go on a payment plan. When considered this way, our relationship with our device is inherently transient.

We’re far more likely to have a longer-term relationship with the phone brand, or to our network provider, and so if you’re not planning on making any big changes, the payment plan might not be a bad option. Buying outright, though, allows you to take your phone and leave a provider easier.

Pay for it Outright if the Phone is Older

If the smartphone is older and thus less expensive, it may be a better option to simply pay for all of it at once. As we’ve alluded to before in our guide on updating your phone, most smartphones can accommodate newer operating system updates and function just fine for what we need them to do.

Indeed, if you have the cash ready, and intend to hold onto the phone for longer than two years, as many of us do, buying outright is the best option (you may even consider insurance – our guide).

Smartphone and cellular contracts used to be for a two-year duration, but as network swaps became more frequent, and folks held onto their smartphones for longer than two years, dealers saw new opportunities.

As you go to purchase a new phone, anyone will offer you a payment plan on basically any model, but for these older, cheaper phones, the hassle of managing a payment plan over time is usually not worth the advantage of not having to pay that lump sum upfront.

Buying Through a Carrier

Carriers sell smartphones that are typically locked and only work with their cellular network. For this limitation, you can often find good deals on newer, and some less-than-new smartphones. Additionally, most cellular carriers often offer trade-in deals that, even after an all-in purchase, can keep you up to date.

The flip side to this arrangement is that, once you’ve purchased, it’s not easy to move to another cellular network should you find a reason. For most of us, this is not a problem, but if the carrier isn’t working for you, you won’t likely be able to use your phone on a new network, and you’ll be in the market for another device.

As many users find out (forum link), the phone is often sold at MSRP or even lower through a carrier…but typically only when you agree to a 24 or 36 month contract. Carriers make their money on the monthly access fees, not selling you the hardware. So these deals may not really be deals in the end.

Pro Tip: If your carrier is giving you a good deal on a new phone in exchange for a contract, you are likely still paying much more than if you bring your own phone to a monthly carrier like Mint Mobile.

Buying Through a Manufacturer

Apple and Samsung offer smartphones with different network options, and also offer unlocked phones, most of which can be used on any network. However, companies such as Apple are famous for almost never having any kind of deals.

According to Make Use Of, carriers compete with each other to give their customers better deals on a monthly basis, whereas Apple and other phone manufactuers do not – at least in the same way.

How do Cellphone Payment Plans Work?

Smartphone dealers and sellers appear to have taken a page out of the car dealership playbook. By leasing or financing a smartphone through them, the relationship between them and the smartphone “owner” (you) is strengthened.

In addition, the smartphone existence cycle has a clearer path, keeping you with fresh stock in hand. And it makes you not “feel” the weight of the purchase as much, pushing you subtly to spend more.

What is Phone Financing?

To make sure we’re all on the same page, “financing” means making payments, usually monthly, until the price of the phone plus a service fee is paid off. Paying for your smartphone with a credit card is one way of financing your smartphone; the caveat here being that financing through your network provider or a smartphone dealer usually offers low or no interest financing.

The downside of financing is that, if you hold onto the smartphone long enough to pay it off, you’ve in the end spent more money than if you had simply purchased the device outright.

If you’ve done the math and this is your problem, you might consider why you feel it necessary to have this particular phone. For a 0-interest payment plan, so long as you pay it off on time you actually won’t pay more for the device, but you have to really pay attention and make sure you pay it off on time.

Perhaps a more affordable older smartphone or a refurbished phone (our buying guide) would be a better option. Many smartphone users hold onto their phones for longer than two years and the operating systems that many smartphones use work equally well on older devices. Even these less current models get the job done and retain some trade-in value when the time to upgrade comes around again.

What is Phone Leasing?

Leasing is much like renting. With leasing, you pay a monthly fee for the use of the phone, usually for about a two-year term, although this varies. One benefit of leasing is being able to swap phones after a specified period of time, which allows the lessee to always have the most current smartphone.

With leasing however, you never really “own” the smartphone in question. Instead, you contract with the seller, a carrier or manufacturer usually, to use their service for a set length of time. With this contract comes the smartphone, along with other benefits unique to the contract. These could include tech support, repair warranties, or the ability to easily upgrade your phone.

The advantage of leasing is that you pay for only as long as you stay in the contract with the seller. When considering the regular smartphone upgrade cycle in which we participate, in the longer run leasing may cost less money. This is most likely if you tend towards higher-end phones, or frequently experience the urge to upgrade your device.

How To Finance Your Phone

So, if you want to do this, how do you actually do it. As discussed, you can talk to your phone carrier first, but know that the contract will likely add costs to your bottom line over a monthly option.

What else can you do? Many users have discussed alternative financing options (example here) like buying a phone through PayPal and using PayPal financing, or, indeed, purchasing it through Amazon and using Amazon’s financing solution. You can even buy the phone directly from Apple or Samsung on a payment plan.

Is Taking on Debt for a Phone Bad?

Woman With Smartphone And Credit Card

The concern underlying these financial situations is, for both financing and leasing, the smartphone “owner” has to carry an increased amount of debt. Traditionally this has been a barrier to perceived ownership, and perhaps carries with it a certain amount of stigma.

Ultimately, you get to decide for yourself how much, if any debt is right for you. In general, the more money you have, the more debt you can carry. If you’re not swimming in cash, it makes sense to make a deliberate, calculated decision about whether owing an institution an amount of money, for possibly years, for a device you will eventually trade in, works for you.

For what most of us use smartphones for, older and refurbished devices will be able to execute perfectly well. If you’re comfortable with having a smartphone that is not the latest, shiniest model, then it makes more sense to reduce your expenses and buy such a phone outright.

But if you’re not among this group it’s reassuring to know that there are options, additionally, we have answers to other similarly pertinent questions like whether you should accept website cookies on your phone.