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Smartphones are expensive: One of the latest iPhone models can set you back $600 or more. That’s more than some laptops!

So what happens if you need to replace your phone fast, but don’t have enough cash on hand? Can you finance a smartphone?

The short answer is “yes.” The longer answer includes the caveat “be careful.” That’s because financing options vary widely and all contain hidden traps of one sort or another.

Finance Through Your Provider

The way many smartphone buyers avoid sticker shock is by letting their cellphone carrier subsidize the cost of a new phone. They do that by signing a two-year service contract with the provider, then getting the phone either for free or at a reduced cost. This can work well if you are satisfied with your cellphone service and nothing happens that forces you to get out of your contract early (you move to a new area or lose your job, for example). If you need to terminate your contract early, the fee will be steep.

If you don’t want to sign a new two-year service contract, you still have options. In the past, that usually meant either paying upfront or a phone or buying a compatible phone elsewhere and linking it to your account. But most providers now offer payment plans on phones, separate from the service contract. These plans typically allow you to pay for some of the priciest phones over a a couple of years.

For this story, I compared the cost of an iPhone 5s in the 16 GB model. All the major cellphone providers offer a similar deal. You have three options:

  • Pay upfront. The retail price is typically $649.99.
  • Sign a two-year contract: The price drops to $199.99, and even that may be paid off over time with a trade-in or good credit.
  • Buy the device using an installment plan for approximately $20 to $27 a month for 18 to 24 months.

All three carriers I looked at advertise interest-free payments for the device with no service contract required. But if you drop service with the provider you’ve obtained the phone through, you must pay off the remaining cost of the device immediately. This essentially ties you to the service provider, unless you have the cash to pay off the phone in full.

(More details about major providers plans are listed below.)

Finance Through a Third-Party Seller

You can buy a phone on eBay or through an electronics store. The store may offer interest-free financing for a time, or you can use Bill Me Later to pay for an eBay purchase. (Other retailers may offer Bill Me Later as well.) You have to make sure to buy an “unlocked” phone compatible with the cellphone carrier of your choice.

Best Buy, for example offers this phone for $699.99 with no contract extension. It can be financed with a Best Buy credit card, which is currently offering no interest for 18 months if paid in full during that time. The catch, of course, is that if you don’t pay it off in 18 months, or if you make a late payment, interest will be charged from the date of purchase. The advertised APRs are: variable 23.24% to 27.99%, non-variable 9.99% to 24.75%.

Walmart is advertising this phone for $649 as a prepaid phone or in conjunction with their month-to-month Straight Talk service. It currently advertises two financing options:

  • Bill Me Later is offering six months with no payments, and no interest if paid in full within six months on orders over $250. If not paid off in six months, interest will be charged from the original date of purchase. You will either have to already have a Bill Me Later account or apply for one. (A credit check will be required.)
  • Walmart Credit Card or Walmart Discover Card. Both of these currently carry a 22.9% variable APR. Currently offering new cardholders a $25 statement credit if they open a Walmart Credit Card account and spend $75 the same day they open their account. Offer expires January 31.

Your Own Credit Card or Loan

If you have a low-rate credit card, you may want to use that to purchase your smartphone. You can create your own repayment schedule, but you’ll pay whatever interest rate your lender charges. The danger? If you make small monthly payments, you may still owe a chunk of money when you are ready to trade your smartphone in for a new one.

You could also consider taking out a short-term personal loan from your bank or credit union.

What If I Have Bad Credit?

Providers specify that a credit check is required for an installment plan purchase of a phone. If you don’t have an acceptable credit score (which is not specified as far as I could tell), you purchase your device outright. That means it’s a really good idea to check your credit reports and credit score — you can do that using a tool like the Credit Report Card, which gives you two credit scores every month for free — before you shop for a cellphone. Even if you plan to purchase the phone with cash, a credit check may be required for service.

Major Cellphone Provider Cost/Financing Comparison

AT&T

  • Retail price: $649.99
  • Two year contract: $199.99
  • AT&T Next 12: $27/month
  • AT&T Next 18: $20/month

AT&T’s plan pricing is confusing, however. If you paid $20 for 18 months (total $360) you haven’t bought the iPhone 5s: You’ve simply bought the ability to upgrade to a new phone. Below the pricing chart, it says:

*Requires 20- or 26-month 0% APR installment agreement and qualifying credit. Sales tax due at sale. Qualified wireless service plan (voice and data) required. If you cancel wireless service, remaining device balance is due. Twenty months at $27 puts you at $540 total, while $20 per month for 26 months puts the total at $520. The site doesn’t make it clear whether that is the total amount due for the phone. More likely, it’s counting on customers to keep upgrading to the latest and greatest model.

Sprint

  • Retail Price: $649.99
  • Two-year contract: $199
  • Sprint Easy Pay: estimated $27/month for 24 months*

Sprint doesn’t list the Easy Pay payment program on its site, and you must go into a store that offers that program to get it. However, it may be assumed that those payments will be approximately $27/month based on the information on the Sprint website, which says: “Sprint Easy Pay…(customers)  agree to 24 monthly installment payments for the device.” There are “no financing fees” and the service agreement will be month to month; however, if the customer wants to cancel their service agreement, the balance will be due on the next invoice.

T-Mobile

  • Retail Price: $600*
  • Installment plan (excellent credit): $0 upfront, $25/month for 24 months
  • Installment plan (credit builder): $270 upfront, $13.75/month for 24 months

*T-Mobile lists this as the retail price, however, I could not find this phone for sale under the “no contract” option at any price. The only options I found were installment plans. T-Mobile’s advertised retail price appears lower than what other providers are advertising, and if you accept the installment plan, you can pay that price.

The description for the installment plan says: “0% APR On Approved Credit for well-qualified buyer (sic). Qualifying rate plan reqd (sic) … Device loan balance due on service cancellation.”

Verizon Wireless

  • Retail price: $649.99
  • With two-year contract: $199.95
  • Edge plan: $27.15/month for 24 months

From the Verizon website: “Verizon Edge is a program that lets you pay for your phone over 24 months rather than paying for it all upfront. You only need to pay the first month’s installment at the time of purchase. You’ll then make a monthly payment until your phone is paid off completely. After six months, if you’ve paid for at least 50% of the phone, you’ll have the option to Edge Up to a new one without any upgrade fees. To be eligible for the Edge Up option, the Edge phone being returned must be in good working condition and have no significant damage, as determined by Verizon Wireless.”

As for credit requirements, it says, “Six months of good payment history,” for current customers. “Customers with accounts less than six months (sic) will need to go through an internal e-credit check.  To be eligible for Verizon Edge, new customers must pass a credit check.”

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