Should You Buy, Lease, or Finance Your Next Smartphone?

Remember a few years ago when you thought that friend of yours who always had the latest model iPhone was crazy for spending that much? That’s changed in recent years as carriers and others allow you to lease your device. Taking a page from the auto industry, you now have the option to make payments on a phone and simply trade it in for a new one when the time comes. But is this really a good deal?

The answer to that question is actually pretty complicated. With that in mind, let’s first take a look at some background on the whole subject and then dive into the arguments for financing, paying in full, and for leasing.

What You Need to Know about Buying or Leasing a Smartphone

The first phone that I ever purchased on my own was a Sidekick II. In order to get this (then) mind-blowing device, I had to sign a two-year contract with T-Mobile and pay $200 upfront. This process was more or less repeated as I eventually went to Sprint to get a Palm Treo under similar terms and then to AT&T for an iPhone 3G and later a 4S. I believe it was when I went to buy to my iPhone 5S that I learned that the subsidized phone contract deal was a thing of the past. Instead, you could now either pay the full price upfront or finance it and have it added to your monthly bill. While I was annoyed that I could no longer get my new phone for $200 (although it’s arguable if that was ever even a good deal), I ponied up the $550 for my phone and went on my merry way.

Of course, that’s not the only thing that’s changed in recent years. While Apple’s cycle of a new “numbered” phone followed by an “S” may have been informed by the old two-year contract gag, the company seemingly abandoned that pattern by releasing the iPhone 8 a year after the 7. And then there’s the new iPhone X, which starts at $999. So, between the option of nabbing a so-called subsidized phone going away, more phones hitting the market (see also: Google Pixel 2, Samsung Galaxy S8, etc.), and prices on said phones rising, it’s no wonder that some consumers might be weighing their financing options.

Unlocked Phones

One big difference between financing your phone and buying it outright is that, unless you pay in full upfront, your phone will be locked. This just means that the device can only be used on a certain network, thus preventing you from taking a phone you still owe money on and taking it to another carrier. However, once your device is fully paid for, you can request to have it unlocked.

For most people, having an unlocked phone isn’t exactly a necessity. On the other hand, if you don’t want to be tied to a certain carrier, you might consider paying in full. Another important note is that, as I’ve mentioned in some of my travel posts, you can sometimes save some money on cell phone service by buying international SIM cards. Unfortunately, this plan will only work if your phone is unlocked.

Financing vs. Leasing

To be sure, there is a difference between simply financing a new phone and leasing one. In a financing agreement, you’ll likely be making monthly payment that will eventually add up to the phone’s total cost, at which point you’ll own it free and clear. On the other hand, like with leased vehicles, your device will need to be returned once the contract terms end.

Adding to the confusion, some of the programs that various carriers offer are blurring the lines between these two concepts. For example, AT&T Next allows customers to purchase phones, make monthly payments based on the option they choose, and trade it in for an upgrade after a certain length of time. Alternatively, you could forgo your “early upgrade,” continue making your regular payments (or pay it off early), and keep the device.

Leasing plans

As mentioned, many of the major mobile network carriers now offer their own leasing programs. Additionally, Apple has their own iPhone Upgrade program. Notably, the Apple program includes Apple Care whereas the carrier options don’t. Additionally, according to Apple’s site, you can even switch carriers after activating. The moral of the story is that, if you are considering leasing, you should look into what options you have and do some comparison shopping. Also, it never hurts to ask questions before buying as these plans come sometimes be pretty confusing.

What is the Best Way to Purchase a New Smartphone?

The Argument for Financing

Smartphone financing is popular for a number of reasons. Chief among them is the fact, in many cases, this financing comes with 0% interest, meaning that you’re spending the same amount whether you pay upfront or have monthly installments. Because of this arrangement, many (but not all) would argue there’s no reason not to finance your phone under these terms if you wanted to buy instead of lease.

The Argument for Paying in Full

Like I said, not everyone is on board with the idea that 0% financing is the same as paying in full. In fact, in a recent article, financial blogger Holly Johnson argued that such arrangements actually trick many consumers into spending more than they can really afford. This is to say that, by paying the full price upfront, you’ll truly understand the cost of your decision.

Whether or not you side with Holly on this point, another reason you might want to buy your new phone outright is so that you can enjoy the freedom that comes with having an unlocked phone. What’s ironic is that many cell phone shoppers used to balk at the idea of signing a two-year contract to get a new phone, yet so many are still locked into telecom agreements because they’re financing or leasing their device. If you truly want to be untethered from a network and don’t want to have to worry about making monthly payments, it may make sense to just pay in cash (not literal cash as you’ll want those credit card rewards) upfront.

The Argument for Leasing

On the surface, it may seem that the reason people would prefer to lease their phones instead of buying them is simply because they always want to have the shiniest new toys. That may be a main factor, but it’s also about how you use your phone and will continue to use your phone in the coming years. To some, there’s just little or no value to a phone after a few years, so trading it in actually makes more financial sense.

There’s also something to be said for having the latest model cell phone beyond the bragging rights and tech envy. As smartphones become the primary device for many of us, hackers are consistently discovering new ways to break into them. Thankfully, companies like Google and Apple are pretty quick to patch these problems with software updates but, if your phone is too old, you may no longer to receive such updates, potentially leaving you vulnerable. That may be a stretch to some, but it is a considerable concern for others.

Which Argument is Right?

Well — it depends. For those who need a new phone and may not have the $700+ dollars on hand to buy one, monthly payments may make sense. Meanwhile, international travelers or those who don’t want to be tied to any network may opt to pay in full. Finally, if you don’t plan on using your phone for long and want to ability to upgrade to that latest model as soon as it hits the market, leasing might be worth the price.

Personally, as someone who tends to use a phone for two to three years before upgrading, I prefer to either pay in full or finance — and I have done both. Most recently, I purchased my iPhone SE with the AT&T Next plan and gave my still-functional 5S to my wife. Had I leased my 5S, that wouldn’t have been an option and we’d currently be paying for two phones instead of one. Incidentally, I’ve also seen a downside to financing as well. On a solo trip to Hong Kong, I had to swap phones with my wife for the week since I wanted to use a prepaid SIM and my phone is still locked. Because of this, I’ll likely just pay upfront in the future.

Over the past few years, the way many Americans pay for their cell phones has changed drastically. While a $200 smartphone with a two-year contract may no longer be an option, you now have the choice to finance your phone, lease one, or simply pay for it in full. No matter what you choose, just be sure that your plan is one that you can honestly afford and that makes financial sense for your situation.

This article was first published on Money@30.

Kyle is author of “The E-Ticket Life” and “Write, Print, Publish, Promote” as well as a regular contributor to Dyer News, Moneyat30, and The Laughing Place.

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