Smartphone Shoppers: Is Leasing or Buying a Better Deal?
At $500, $600, or more, flagship smartphones like Apple’s latest iPhone or Samsung’s most recent Galaxy device are expensive — especially if you like to get a new phone every year. But not everyone has the disposable income to spend on a new smartphone each year, or the ability to cut other expenses to buy one, as CNBC reported last year nearly half of Americans are doing in order to afford new tech. So carriers are encouraging buyers to lease a new phone for a low monthly rate, and just trade it in for the new phone you’ll inevitably want in a year or so.
Brian X. Chen reports for The New York Times that the idea underlying these “early upgrade plans” is simple. “You lease a smartphone, and after a certain amount of time — say, one year — you trade in your current device and start a lease for a brand-new phone.” Unlike the traditional two-year contract, these plans, offered by everyone from AT&T to Verizon to Apple itself, enable you to upgrade more often.
If you do upgrade to a new phone every year, you’re undoubtedly going to end up spending more in the long run than you would if you pay off a device and hold onto it for a longer period of time. After all, few but the most enthusiastic of tech fans really need or want a new phone every year. But the Times also found that the extra costs associated with leasing are “reasonably low,” which means the plans can be taken advantage of by frequent upgraders and by tech lovers who don’t necessarily plan to upgrade every year, but just want the flexibility to reserve that option.
Understanding exactly how and when to use an early upgrade or leasing plan requires a little bit of knowledge about how things used to work. In the past, when you bought a new smartphone, you would pay a one-time down payment and sign a two-year contract. Each month during those two years, you would pay for the cost of wireless service, and pay a portion of the remaining cost of the phone. You would typically have to wait two years to pay off the phone and then get another device at the carrier’s subsidized rate.
The industry’s new installment plans tell you the cost of your phone up front, and enable you to spread out the cost with monthly payments. Many of these plans build in an option to upgrade early, starting a new payment plan with a new device. Such plans are offered by Apple, AT&T, Verizon, T-Mobile, and Sprint. So how do they stack up against each other, and against the option of paying off the device before buying a new one?
Chen calculates that under Apple’s iPhone Upgrade Program, a 64GB iPhone 6s would cost $438.96 to lease for a year. In the same period of time, the same phone would cost $450 to lease through AT&T’s Next 12 plan, $374.88 through Verizon’s early upgrade program, $321.24 through Sprint’s iPhone Forever program, or $425.07 through T-Mobile’s early upgrade plan.
Compared to that $321 to $450 that it costs to lease the 64GB iPhone 6s, it costs $750 to purchase the new iPhone. But if you use that iPhone for two years, it costs only $375 a year. And at the end of the two years, if you feel like upgrading to a new iPhone, you always have the option of recouping a decent percentage of the cost of the old one by selling it. Chen estimates that if you buy the iPhone 6s for $750, then in two years, you might be able to sell it for $175. That reduces the overall cost of ownership to $575, or $287.50 per year. Which makes owning the device cheaper than leasing it.
But in some cases, a leasing plan can be beneficial. Such plans afford you the freedom to upgrade — or not to upgrade. You don’t have to keep leasing a new phone each year. In fact, if you’re happy with that iPhone 6s, you can keep it until you’ve fully paid it off, at which point, you own it outright. Chen explains that if, for instance, you get your iPhone 6s through AT&T’s Next 12 annual upgrade program, the plan gives you 20 months to pay off the device. So if in 12 months, Apple releases an iPhone 7 that you aren’t excited about, then you can just continue to pay off your iPhone 6s. By the time the 2017 iPhone is released, you’ll own your iPhone 6s, and can sell it and start a lease for the new iPhone.
If you decide to go with a leasing plan, the first thing you should do is to check which carrier has the best coverage where you live and work. After that, compare prices, keeping in mind that T-Mobile and Sprint offer the cheapest leasing plans. And if you’re in the market for an iPhone and are particularly accident-prone, Apple’s upgrade program with the Apple Care Plus plan baked in is a good value.
Regardless of whether you plan to buy your smartphone or lease it, it’s a good idea to consider whether you need — or want — a new smartphone every year. Currently, an estimated 10% of iPhone owners are annual upgraders, and that figure is expected to shoot up to 75% by the end of 2018. If you enjoy having a new smartphone each year, it’s fine to choose a plan that enables you to easily upgrade annually. But you shouldn’t let the marketing hype pressure you into thinking that your device has a twelve-month expiration date, especially if you’re usually satisfied holding onto a device for two years or more.