No-Contract Phones Are Found To Be More Expensive Than Subsidized Devices

No-contract phones are all the rage these days thanks to T-Mobile. The wireless carrier ditched contracts last year and instead adopted a business model that allows consumers to pay off their new phone in small monthly payments. Other carriers have adopted this new model alongside other pre-paid plans that require consumers to pay for the entire device up front. The thinking goes that consumers will save more money in the long run if they go with a no-contract plan, but that doesn’t appear to be the case.

The Wall Street Journal recently took a look at the price of a contract plan versus a no-contract plan and found some interesting results. For instance, a consumer looking to buy an iPhone at Verizon will find that the contract plan will actually save them $175 over two years.

Wait, how does that work? The math shows that an iPhone costs $200 at the time of purchase plus a $35 activation fee when a consumer goes with a subsidized plan under contract. After that, the consumer will pay $75 a month for two years. Under its no-contract plan, Verizon customers don’t pay an activation fee and the monthly cost goes down to $65 a month. That sounds awesome until consumers realize they have to pay an extra $27 a month over the next two years to pay off the phone. At the end of the day, the contract plan costs $2,035 over the course of two years while the no-contract plan costs $2,210.

AT&T and T-Mobile have similar costs for consumers that choose to go for a no-contract plan. While they may not be saving money, they are securing peace of mind as the absence of a contract allows them to switch carriers at any time without any penalties. The only “penalty” would be that they would have to pay off the remaining balance on the phone, but said phone is theirs to keep after it’s paid off. In other words, a consumer could pay off a phone on Verizon and take it to T-Mobile without any problems.

So, what’s the benefit of going with a no-contract plan over a contract beyond peace of mind? According to Verizon, the true benefit comes when a person wants to add more data or devices. Due to monthly fees being lower on no-contract plans, those looking to add more devices do stand to save a bit more money in the long run. It’s nothing major, but it’s something to look at when looking to switch carriers and/or plans.

Still having trouble deciding whether to go no-contract or contact with your next device? As it turns out, plenty of YouTube personalities have struggled with same choice and have shared their thoughts. There might be some advice below that applies to your specific situation: