Purchasing an iPhone

How should you buy your next iPhone? The old two-year contracts are being replaced by new plans that can save you money.

Two-year contracts are generally a bad idea. Sure, you pay a smaller amount upfront ($199 for the basic iPhone), but the remaining cost of the cell phone is spread throughout the monthly phone bills. You don’t see a line item for the phone – the price you pay for minutes and data is simply inflated by about $20 a month. That’s why carriers charge a hefty price if you cancel your two-year contract early or want to upgrade sooner: they have to recoup the unpaid cost of the phone.

Contracts can also be a bad deal if you keep your phone longer than two years. That’s because the carrier keeps charging the inflated monthly rate even if you choose not to get a new phone. The only way to make this work is to buy a new phone the first month you are eligible for an upgrade.

Modern “no contract” plans separate the cost of the phone from the cell service. You pay either full price ($649 for the basic iPhone) or a monthly installment loan (usually 0%) through the carrier. Carriers offer their lowest service rates with these plans. It makes good sense: you’re fully aware of your costs and remaining balance. Want a new phone sooner? Just pay off the old one and you’re free to upgrade. Happy with your phone? Keep it as long as you like. Got a great deal on a used phone or free hand-me-down? As long as it’s unlocked, just activate it on your network. Or change cell phone companies – once you pay the remaining balance on your equipment the carrier unlocks your phone so you’re free to activate it on another carrier.

The Apple iPhone Upgrade Program is a response to these newer “no-contract” carrier plans. The difference is that the phone is unlocked from day one. You’re free to shop around and change carriers anytime you like. You’re only paying them for cell service, so your iPhone payment is unaffected. iPhone Upgrade Program includes AppleCare+, so if your phone is damaged most repairs are free. And at the end of a year, you can trade in and get the latest iPhone model. Or if you keep your phone for 2 years, it’s yours. Sell it, hand it down to someone else, whatever you like. iPhone Upgrade Program is available only in Apple Stores – not online.

iPhone Upgrade Program is a great deal for the techie who can’t live without the latest iPhone and wants AppleCare+ protection. If you like to use a phone longer than one year, or you’re the generous type who hands your old phone down to a family member or coworker every year, you might be better off financing through your carrier or paying up-front. Just stay away from those two-year contracts!

See price comparisons of major carriers and tips on buying & selling used iPhones. Determine how much data you need [Evernote]. Before you sell or give away an old phone, back up and restore it.

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