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 depends on the type of person you are. For many 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 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 iPhone 12 (on Amazon) or a Samsung Galaxy S20 (also on Amazon). 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

Buying your smartphone 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, which means their services are offered.

We will likely go through many smartphones throughout our lifetime; whether or not you want a new expensive model or a cheaper older model 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 pay for all of it at once simply. 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.

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 purchase a new phone, anyone will offer you a payment plan on basically any model. Still, 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 can keep you up to date even after an all-in purchase.

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.

Buying Through a Manufacturer

Apple and Samsung offer smartphones with different network options and offer unlocked phones, most of which can be used on any network. However, companies such as Apple are famous for rarely having any deals. According to Make Use Of, carriers compete to give their customers better deals every month, whereas Apple and other phone manufacturers 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. Also, 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 is 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 pay attention and make sure you pay it off on time.

Perhaps a more affordable older smartphone or a refurbished phone 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. You pay a monthly fee for phone use with leasing, usually for about a two-year term, although this varies. One benefit of leasing can swap phones after a specified period, allowing the lessee always to have the most current smartphone.

With leasing, however, you never really “own” the smartphone in question. Instead, your contract with the seller, a carrier, or manufacturer usually uses 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 upgrade your phone easily.

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, leasing may cost less money in the longer run. This is most likely if you tend towards higher-end phones or frequently experience the urge to upgrade your device.

Is Taking on Debt for a Phone Bad?

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

Ultimately, you get to decide how much debt is right for you, if any. 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 execute perfectly well. If you’re comfortable with having a smartphone that is not the latest, shiniest model, 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.

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