Buying a smartphone is a pretty confusing undertaking, particularly if you aren’t entirely sure the move away from two-year contracts and carrier subsidies has played out. If you’re like the average consumer, you probably just want to make sure that you aren’t overpaying for your calls and your data use. And you’re likely hoping to find a phone that isn’t so expensive that it’ll be painful to purchase. This is why carriers’ advertisements for “free phones” may sound especially tempting.
But if you’re really looking for a good deal, you shouldn’t believe those ads. There’s no such thing as a free phone, and believing that there is will just make it more likely that you’re spending more than you really think you are. Read on to check out the reasons that you shouldn’t believe carriers who advertise free phones, and learn the truth about what you should really expect to pay for when you purchase a new phone.
1. Offers for free phones are too good to be true
Your mom always told you that if something sounds too good to be true, it probably is. She was definitely right when it comes to carriers’ promises of free phones. As Jacob Kastrenakes reports for The Verge, recent offers for a free iPhone 7 come with many more strings attached than you might assume. In the case of these offers for the iPhone 7, each carrier requires you to trade in a relatively new phone (typically an iPhone 6 or an iPhone 6s). Those phones will have to be in good shape, and you’ll have to pay more in cash if you want an iPhone 7 with more than 32GB of storage.
Kastrenakes notes, “Trading in a phone is pretty par for the course here and hardly a secret.” But the important thing to realize is that “all of these deals essentially lock you into that carrier for two years. They’re basically a new spin on the old two-year contract, where you’d pay $200 for an iPhone so long as you agree not to leave the carrier. The difference this time around is that, instead of paying $200, you’re handing over a lightly used $650 phone.” You’ll need to stick with the carrier for two years, and you’ll still have to pay taxes and whatever other fees your carrier decides to charge you. And it’s worth noting that if you cancel, this is suddenly a very bad deal.
WhistleOut examines some other situations in which offers for free phones actually aren’t free at all. Tara Donnelly reports that “it’s no surprise that when a carrier offers something for nothing, there’s usually a catch.” If a carrier is promising you something for free, you need to sit down and look at the details. Then, you can determine what the actual cost is, and what fees are hiding.
2. You actually pay for free phones on your wireless bill
As Victor Luckerson reports for TIME, explaining how consumers can buy phones “now that 2-year contracts are dead,” he reminds us that free phones aren’t actually free. He explains that many people are used to “picking up a new phone every two years for free or at a heavily discounted price.” But the high cost of the phone you chose “was often baked into your wireless bill in the form of high monthly access fees.” Many carriers have moved to reduce that fee, and are instead charging a separate monthly fee for the actual cost of the phone.
Thus, the best way to save money is to opt for a cheaper phone, or to hold on to your existing phone for as long as possible. You can still divide the cost of a new phone over a period of months, but you can lower your bill by choosing a phone that costs less in the first place. And once your device is paid off, you can hold onto it and enjoy significantly lower bills. In the days of two-year contracts, carriers didn’t lower your bill even if you didn’t upgrade your device. But on a new installment plan, you can slash your bill by holding onto your phone after it’s paid off.
3. Free phones aren’t free and haven’t been free for a long time
Misleading advertisements about the real cost of phones is nothing new. Chris Hoffman reported for How-To Geek several years ago that free phones weren’t free. In fact, Hoffman posited that free phones will “cost you more in the long run than paid phones. Even discounted phones are hundreds of dollars more expensive than full-price phones.” That’s because buying a phone on a contract — the way almost everybody bought their phones for years — is more expensive than buying a phone without the contract. Hoffman explained:
That “free phone” may be free on its own, but it will get you locked into a two-year-long contract. You’re not really getting a free phone — you’re getting a phone and two years of cell phone service paid for at $X a month for 24 months. If you want to terminate your contract, you’re forced to pay a cancellation fee — after all, the carrier has to recover the cost of that “free phone.”
Buying a phone off-contract reduces the cost of your monthly bill. Which is why we always advocate for buying your phone upfront, if you have the spare cash to do so. Even though binding two-year contracts have largely gone by the wayside, carriers continue to overcharge for phones that you pay over the course of months or years. The subsidy or installment plan often ends up costing more in the long run — which is especially unfortunate if you thought you were getting a free or discounted phone.
4. Buying a “free phone” is like purchasing with a credit card, and then paying only the minimum monthly fee
Hoffmann has another way of explaining the “free phones” predicament (just in case your eyes glaze over thinking about contracts and subsidies and the ins and outs of discounts that don’t really save you any money). He notes that buying an expensive phone for a minimal upfront cost is like using your credit card to make the purchase, and then opting to just pay the minimum fee every month.
If you have a credit card, you can get anything for “free.” Just buy the item on your credit card and pay the minimum monthly fee. In reality, we know this is a terrible idea because we’ll be stuck paying this monthly fee forever. We’ll pay much more than the original cost of the item when the credit card company is through with us. Free phones are just like buying a phone on a credit card, except the cell phone carrier gets to pocket the profits of giving you credit up-front.
Carriers’ choice to give people a way to get a phone with a low upfront cost isn’t necessarily a bad thing. After all, it means that if you don’t have the cash to buy a $500, $600, or $700 phone when your old one takes a dip in the swimming pool, you’ll still be able to get a phone. The problem is when they deceive people into thinking that it’s their only option and get them to pay more in the process.
5. The phones that come with the fewest strings attached are the most expensive to purchase upfront
Most people who have looked into the economics of smartphones and wireless plans are advocates of buying unlocked phones. These devices can easily span different networks in the U.S. and even abroad. If you can pay the whole retail price of a smartphone upfront, for instance, you can get an unlocked phone that provides you with a lot more flexibility than a model built especially for a specific carrier.
But buying an unlocked phone is an expensive endeavor — which highlights just how wrong claims about “free phones” really are. A free phone sounds like something with no strings attached. But reducing your ties to companies like carriers requires both purchasing an unlocked device, which can be used on any network, and paying for it upfront, so that you don’t owe anyone a payment each month. Unlocked phones purchased outright are a luxury that many people can’t afford. And if you use your manufacturer’s credit program, like Apple’s iPhone Upgrade Program, you may end up paying high interest rates if you don’t make your payments on time.
6. Carriers generally aren’t the most transparent about what they’re actually charging you
It’s no secret that wireless carriers generally aren’t the most reliable sources of information of what it actually costs to buy a phone and pay for service. Two-year contracts were relatively straightforward. But in the wake of their demise, carriers have introduced a host of confusing new ways to buy (or lease) a new smartphone. A key part of the business model seems to be the assumption that a sizable portion of their customers will never figure out exactly what’s going on — the same assumption that underpins their blatant advertising of “free phones” that aren’t really free.
There are plenty of other ways that your carrier is probably overcharging you. The company probably adds hidden fees to your bills. It likely convinces you to pay for more data than you need. Chances are good your carrier charges you more than the retail price for your phone. It may even try to keep your bill the same after your phone is paid off. And it almost certainly charges exorbitant fees for things like early termination. Suddenly, the idea that this company wants to give you something valuable for free sounds a lot more far-fetched.