A Better Cell Phone Value with Installment Billing

Americans love their smartphones, but they sure are expensive devices.

Most popular smartphones in America cost between $450 and $850, with an average price of about $650.  However, most consumers are used to paying about $1 to $200 in a store for their phone.

So what’s the catch?  Well, cell phone companies decided that they could make people sign up for big, expensive two-year contracts in exchange for giving customers a discount on phone at the time of purchase.   On average that discount is about $450.  This whole contract thing was fine for a while, but over time customers got frustrated with this system for several reasons.

1.      Being stuck in a contract for 2 years.

2.      Paying activation fees.

3.      Paying $200 or more in-store for the newest phones.

4.      Expensive cell phone plans that charge you a hidden subsidy even if you own your phone.

The solution to all of these issues is called Installment Billing.  Installment billing lets customers get the latest smartphone for $0 down, no activation fees, no financing fees, and no contract.  The cost of the phone is divided into monthly payments on the cell phone bill.  This also allows consumers to trade in their device after a certain amount of time, cancel the remaining payments on that old device, and ‘upgrade’ early to a new device.

Now at first this can seem really expensive.  However, since you are no longer signing a contract, the cell phone companies give you a big discount on your bill.  For many customers, that discount is $25 per month.* If you save $25 per month for 24 for months then you get a $600 discount. That’s a lot better deal than that old $450 discount on the phone!

Cell phone companies will still let you sign a contract and give $450 off your phone if you want.  But for most customers, it is just a way better deal to get all the advantages of Installment billing and get the bigger $600 discount.

As of 12-22-2014, AT&T Next offers a 20, 24, and 30 month payment plan.  Verizon Edge, Sprint EasyPay, and T-Mobile offer 24 month payment plans.

*A $25 out of contract discount about applies to plans with 10GB of data or more.  If you have a smaller 1GB -8GB data plan the discount is $15 per month.  That adds up to a $360 discount over two years.  By the time you add in activation fees of up to $40, Installment Billing is still very comparable to the price of a contract and may be the better value.