Dollar Scholar Asks: Should I Buy or Finance My Next Cell Phone?
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This is an excerpt from Dollar Scholar, the Money newsletter where managing editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
My cell phone is dying, and I don't mean its battery. In recent months, my iPhone 13 has become glitchy, grainy and out of memory; I can tell its life is coming to an end.
However, few tasks give me more anxiety than getting a new cell phone. I'm scarred by awkward memories of standing with my mom in the AT&T store while an employee attempts to upsell us on unnecessary features. Adding to my stress is the fact that this time, I'm considering trying something I've never done before: buying a phone outright.
I've had one cell phone or another since I was 13, and I've always chosen to finance those devices. But I happen to have some cash on hand right now, and I'm wondering if it's actually smarter for me to knock out the cost of my new phone upfront.
Should I buy or finance a new cell phone?
Different companies use different terms for what I'm referring to — lease-to-own, equipment installment plan, device payment program — but the idea is the same. I can either fork over the total cost of the device in a lump sum upfront or make monthly payments until I've paid it off. (Note: For the purposes of this article, assume I'm buying through a carrier.)
For example, say I want to purchase a 128-gigabyte iPhone 16 with Verizon. I can either pay a one-time charge of $829.99 (the cost of the phone) or agree to $23.05 each month for 36 months. At the end of those 36 months, the phone becomes mine.
"Your phone is now paid off, and you're free to unlock it," brags a Boost Mobile FAQ. "No more device charges for this phone on your bill!"
Breaking up that big payment into lots of little ones has both pros and cons, according to Christa O’Brien, a financial advisor with Northwestern Mutual.
"Financing a phone spreads the cost over time," she writes in an email. "This option helps preserve cash flow, allowing you to save or invest elsewhere while still being able to afford a new phone."
However, it also has the potential to lure me into something I can't actually afford.
For instance, when T-Mobile divides the cost of the Samsung Galaxy Z Flip6 by 24 months, it's only $45.84. That's a lot easier to stomach — and rationalize — than the full price of $1,099.99.
"The ease of financing at first might tempt you to choose a more expensive model than if you were to buy it upfront in full," O'Brien says. From there, it's a slippery slope because long-term monthly payments can burden my budget.
One thing that's key here is the interest rate. Many phone installment plans have a 0% APR, meaning they don't accrue interest, but I should verify that before signing the contract. O'Brien says I should also look into whether my monthly installment plan locks me into staying with that carrier until my phone is paid off, which can limit my flexibility.
Another consideration is my credit. Some installment plans require soft credit checks to set up; these don't impact my score but are still worth keeping track of. Chase points out in a blog post that financing a cell phone helps me build credit only if my payment activity gets reported to the credit bureaus — something most carriers don't do.
For these reasons and others, O'Brien says it can be smart to take the lump sum route. Not only do I avoid paying interest or additional financing fees, but also many retailers offer discounts or promotions for upfront purchases.
Of course, the difficulty here is that it requires a large payment. That also has the potential to strain my budget or eat into savings that I should be setting aside for emergencies. Plus, phones tend to depreciate pretty rapidly, meaning "the initial expense may feel less justified over time," O'Brien adds.
So how do I navigate this?
First of all, it's important to remember that the cost of the phone isn't the only expense I'm dealing with, says Luis Silva, AT&T vice president and general manager for Florida. He recommends I start by doing some homework on what equipment I need, like whether I prefer an Android or an Apple phone and which features I want (AI, a better camera, more memory, et cetera).
Although my inclination may be to upgrade to the top of the line, it's likely I don't actually need the latest version with all the new doohickeys.
"The great thing with those phones that are a little bit older ... [they] are really good phones, and you don't pay as much money for them because they get discounted," Silva says. "The same way as when you buy a car from the previous year."
My next step should be to ask whether I can get a discount for trading in my current phone. Depending on the model and its condition, I might be able to get a bill credit as high as $1,300 that will lessen the sting of buying a new phone.
And finally, Silva says, I should check into other monthly fees, including those for various data speeds, and insurance. But I may qualify for a deal here, too, especially if I work in education, health care or the military.
"The first thing I would say [at the store] is, 'Let me know what phones you have ... what are the monthly fees, [and] how much are you going to take my trade-in for," he adds. "Then I would ask, 'What additional discounts do you have?'"
The bottom line
Deciding whether to buy a phone upfront or finance it over several months is a personal choice that "depends on your financial situation, goals and preferences," O'Brien says. And no matter how I proceed, I should do my research on my equipment needs, plan prices and potential discounts.
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