Handset Financing - Don't Do It!
All major carriers now have handset financing offers.
So what does it
mean? You go into a wireless provider's store and see
that shiny new iPhone or Samsung Galaxy for $500+ and don't have enough
money (or are unwilling) to pay for it right now. You could
get that same phone for $200 if you sign a contract with a postpaid
carrier, however, you either don't pass the postpaid credit check
criteria, your carrier no longer offers subsidies, or you're one of the
smart ones who realizes that the
postpaid plan costs you a lot more per month, and over time the prepaid
plan is a much better deal!
So the prepaid carrier gives you an option to put a minimal amount down
today (ex. $100), and to essentially finance the rest over time (ex.
9-12 months). You may even have an option to avoid interest
charges if you pay it off within 90 days, though there will still be
fees assessed. This is the latest financing program that the
prepaid industry popularized since its initial trial launches in late
Why Do Carriers Like Handset Financing
- Programs like these enable carriers to get customers on
board immediately. Any hesitation on the part of the customer
usually results in them leaving the store and open to competitor offers
(i.e. customers leave and never come back!).
- The operations and risk of financing are born by third
party companies who are actually underwriting the loan (ex. Progressive
Finance, BillFloat, etc.), so carriers get their money upfront with
very little risk.
- Even though you're not in a contract with the wireless
carrier, paying for an expensive phone (even if you're financing it)
typically results in you staying with them longer. So they'd
rather have you finance a more expensive phone, than have you pay in
full for a less expensive phone. Research clearly shows that
the more you spend on a phone, the longer you stay, with iPhone
customers historically being even more loyal than other
Why Do Customers
- You get to walk out of the store with a fancy new phone
when you don't have the money available. (Now that's stating
- You'll typically get a much better interest rate than you
would charging it to a credit card.
Things Customers Should Consider
- Do you really want to pay fees and/or interest just to buy
a smartphone that will be obsolete long before you finish paying it off?
- These financing offers usually also allow you to include
accessories at the time of your phone purchase. How much do
you really want to pay for a case or headset after interest is
- Even though they don't do a credit check to qualify you,
knowing your name, address, and date of birth, they can hit your credit
score (either positively if you pay as agreed to, or negatively if you
don't honor your financing contract). Even one delinquent
payment of $50 can crash your credit score such that when you go to
finance a car or a home, you'll end up paying many many thousands of
dollars more over the life of the loan.
Why Do I Feel Handset Financing Is Evil?
- It preys on us consumers who lack the patience to save up
our money to buy what we want. We want it now! This
type of attitude (dare I say financially irresponsible attitude?) is
largely what contributed to the financial meltdown in 2007, whereby
people were buying homes with interest only loans, and minimal or no
money down on homes they couldn't afford. Phone
financing is the same spirit on a smaller scale. While it
won't create a national financial crisis, it's encouraging negative
- If you can afford to pay off the loan in 90 days to 9-12
months (including fees and interest), why can't you wait 6-12 months
and save up the necessary money?
- A lot of these high end smartphones that are being financed
aren't really worth that much. For example, you can get a
$200-$300 Android phone that will perform just as well, if not better
than the latest $500-$600 iPhone.
- You may damage or break your phone before it's paid off.
Now you've gotta go buy a new phone while you're still paying
off the one you dropped, lost, or drowned in the toilet.
- These handset financing programs are not always fully
integrated with the carriers, meaning that you may have to deal with
paying a separate bill with the lender while you pay your regular phone
bill to your wireless provider. That's an extra hassle that
you'll need to deal with, and demonstrates the lack of investment
carriers have in you as a customer. In other words, they want
you using their phones, and don't care what your financial situation is
that gets you there.
More Food For Thought
One of the elements of prepaid wireless that we all like is avoiding
the need to sign a contract. However, once you opt into one of these
financing deals, you're ultimately tying yourself into a contract!
Given that currently in most cases you're signing a contract
the financing company (not the prepaid wireless carrier), while you can
change wireless carriers, you're still locked into a financial
You may be able to use the phone you financed with another prepaid
provider that supports Bring
Your Own Smartphone
which would be ideal. If not, you'll need to purchase another
phone while you're still paying off an old debt. This would
feel similar to selling a car for less than you owe, buying a
car, and still making payments on a car you no longer have.
I'm sure you can tell that I don't like the spirit of handset
financing. It's a ploy to get more activations (Gross Adds) from
prospective customers that can't afford to purchase their phones.
Overall, I feel that phone financing enters into the realm of pathetic.
Pathetic that carriers are trying to lure customers into
buying something they can't afford, and pathetic for people who don't
have the diligence to save up and buy the phone they want when they
have the cash to pay for it. Maybe this sounds way to harsh
and judgmental; I suppose it is.
In addition, the price of smartphones (and all technology for that
matter) continues to decrease month after month, so you'll be financing
a phone when a few months later you could buy a smartphone at half the
price that is just as capable, if not more so. In other
words, handset financing doesn't seem to make sense on any level.
My advice is to stay strong, set your goals (ex. save $500
within 8 months = $62.50/month = $2.08/day), then buy the
phone at that time. You'll end up with a better phone, and
and won't have to give up any hard-earned money to these financing
companies for something as trivial as a high end smartphone.
If you lost or damaged your existing phone, and are in a situation
where you can't wait to save up, I recommend looking for an older or
used phone on eBay, or buying a certified pre-owned smartphone from a
trusted company like Gazelle
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