Is a 2 Year Cellular Contract Cheaper than Pay As You Go?

The carriers seem to be phasing out contracts and moving toward financing your handset with monthly payments. Which is cheaper?

Hopefully you have been following this series of posts describing my journey of purchasing a new iPhone. As a home inspector, the iPhone is an invaluable tool, especially with the Tap Inspect app.

This time I want to focus on the cost of actually purchasing the hardware or as the cellular industry calls it, the handset. Traditionally there have been two ways to get your hands on a new handset. Sign a new 2 year contact or purchase the handset outright. The idea of purchasing the hardware outright is a fairly new option. The cost of the hardware was hidden inside the cost for monthly service over the 24 months of the contract.

It was not long ago that your only option for cellular service was to have a contract and the cost of the handset was minimal or even free. The only time anyone noticed the actual cost was if you lost it or your device broke. Then it was total sticker shock when you realized your flip phone or BlackBerry cost almost as much as a laptop computer.

The situation is different today. Every carrier offers a pay as you go service plan so there is no need to sign a 2 year cellular service contract if you do not want to. You can even hop from provider to provider chasing the best deals as long as your device is compatible with their network like I described here.

To make things even more complicated each carrier is now offering some type of early upgrade plan like AT&T Next and Verizon Edge. They seem to be moving more and more away from the 2 year contract and instead financing the handset with monthly installments.

So, home inspectors, what are the costs?

To determine the total costs we need to add the cost of the hardware to the cost of service. We will use a 16 Gb iPhone 6 and a plan that provides unlimited voice and text with 3 Gb of LTE data over the course of 24 months using AT&T. Verizon should be similar.

Option 1: 2 Year contact

Cost of handset: $199
Cost of Service: $1920
Total Cost: $2119

Option 2: Full purchase of hardware

Cost of handset: $649
Cost of Service: $1560
Total Cost: $2209

Option 3: AT&T Next Plan

Cost of handset: $649
Cost of Service: $1560
Total Cost: $2209

So, home inspectors, it looks like the best choice really depends on your future plans. Keep in mind that with options 1 and 3, your carrier will only give you a handset that is compatible with their network. You will not be able to take it from CDMA to GSM or vice versa.

You can save almost $100 over 2 years if you commit to a a 2 year contract. If you plan to stay with your carrier and want to upgrade your device as soon as possible when a new one comes out you would want to the AT&T Next plan or the Verizon Edge.

Since my plan was to stay with AT&T for at least the next 2 years but hand my device down and possibly use it on a different network option 2 works for me.

I will bring my own handset to AT&T that I purchase for full price from Apple and is CDMA and GSM compatible. The flexibility in the future is well worth and extra $100 over 2 years.

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