Should You Pay Off Your Phone Early?

Purchasing a new smartphone, let alone the latest model, can be costly for many. That is why people often opt for the option of financing the phone, allowing them to spread the cost of the device over a period of 1 to 2 years, in equal monthly payments. 

Paying off your phone early is not a bad idea. It helps reduce interest costs, lower your monthly bills and free up future cash flow. Leaving the payment plan, however, might invoke a penalty fee.

In this article, we’ll discuss the pros and cons of paying off your phone early. Read further to decide if you are better off paying your debt early or waiting till the end of your plan. 

Is it better to pay off your phone early?

When you pay off your phone early, you free up some cash over the coming months. But whether it’s desirable or not depends on your payment plan. If you have subscribed to a plan with 0% interest, then paying off early will not do much in terms of saving money.

Also, many payment plans include a monthly bonus discount on data allowance. If you decide to pay off your phone early, you will not benefit from any discount.

receive any discount.

So, depending upon the payment plan you’ve got, you should decide if paying off earlier suits your situation.

Do you save money by paying off your phone?

Whether or not you save money by paying off your phone depends on your contract. Many mobile companies like Verizon or Apple’s upgrade program offer a payment plan with 0% interest, so paying off the full amount in that case will not save you money. 

If your contract charges an interest rate, then obviously paying off your phone early will save you money on the amount of interest you pay. 

You should also take into consideration the cancellation charges that most contracts entail. If those charges are high, it may be best to stick with the contract until it ends to save money. 

What is the cost of paying off your phone plan before it ends?

The fee for paying off your phone plan before it ends is known as Early Termination Fee (ETF). This ETF varies among mobile phone companies. In most cases, these fees are very high. 

For example, if you signed up for a 12-month contract and want to cancel in the second month, you might have to pay 10 months’ worth of dues.

For Verizon, the ETF is $350. After each month of service, this ETF decreases by $15. In other words, the longer you stick to the contract, the lower the ETF.

With that in mind, it’s important to have a look at how much time is left in your contract and calculate the additional costs before you decide.

Does paying off your phone reduce your monthly bill?

When purchasing a phone on a payment plan, at the end of every billing cycle, your bill will include your monthly phone payment charge in addition to your costs for talk, text, and data plan.

Paying off your phone payments removes the installments from your monthly bill and, in most cases, lowers it.

Depending on your carrier and payment plan, you might be receiving promotional credits or discounts on your data allowance or on other services. This discount will be lost once you pay off your phone. 

For example, when you finance a phone from Verizon, you get a $5/month loyalty discount on data allowance after 3 months of service; and an additional $5/month applies after 9 months.

If you pay off early, though your monthly phone payment will no longer be on the bill, the discount won’t be either. 

So, before you decide to pay off your phone or not, subtract your monthly phone bill from overall monthly expenses, and this should give you a better idea of your estimated monthly phone cost.

Is your phone unlocked after paying off?

After you’ve paid off your phone completely, you can get it unlocked. Locking means that you cannot use the smartphone on another network. Hence, you cannot use an AT&T sim card in a T-Mobile Verizon

You are legally entitled to get your phone unlocked after paying off, whether you pay off your phone installments completely according to the contract, or you pay an early termination fee and cancel the contract early. 

All the national-level providers in the US including Verizon, Sprint, AT&T, and others, are compelled by law to unlock your phone once you’ve fully paid off the device. This means that you’ll be able to use it on other networks, including internationally.

Do you keep the phone once your contract ends?

Once the contract ends, you can keep the phone as you have completed all your payment terms. It belongs to you, you can keep it, sell it, or use it with another carrier network.

When you’re coming to the end of your contract, your provider will inform you about options to upgrade your handset. Usually, you can choose to upgrade to a new phone after a minimum of 12 months. 

You can continue to keep it for 24 months, at that point it’s yours without additional monthly payments.

Is it better to pay your phone in full or monthly?

It is often better to pay for the phone upfront, especially if you already have other monthly payments and don’t want to add a new one. 

If you have a tight budget, on the other hand, a payment plan may be a good option, especially one with a 0% interest rate. 

Keep in mind that when financing your phone, it will remain locked and can only be used on the network of the financing carrier until it has been fully paid for. You will be tied to that network, won’t be able to use it internationally, and won’t be able to sell it.

Pros and cons of financing a phone

Pro: no big upfront payment necessary

You don’t need to come up with the full price of the phone upfront. Instead of breaking the bank, you can pay it off on a monthly basis.  If you’ve got your eyes set on the latest Iphone or Samsung model, you can get it right now. 

Pro: keep your savings for something else

Savings act as a safety cushion that you can use in case of emergency. If you buy the phone outright, you won’t have any savings to spare for those rainy days, or to spend on a vacation that is coming up.

Pro: 0% interest financing is available

Mobile financing can be a money-saver if you qualify for a 0% interest deal, and pay before the promotional period ends.

Con: contractual binding

You are locked into a contract for 12 months or longer. In case of cancellation, you might have to pay an ETF.

Con: monthly bills

You will have an additional monthly payment to worry about and you won’t be able to add to your savings account.  There also might be some hidden fees you will be paying for your phone that you are not aware of. 

Con: ownership and phone locking

You don’t own the phone until you pay it off completely. Your phone will also remain locked and you won’t be able to switch carriers until you finish paying off your debt. 

Con: depreciation

The monetary value of any asset, including your smartphone, decreases over time.So, when you’re in a contract financing a phone, you still pay for the original value even if it has dropped over time, due to wear and tear, or obsolescence with the launch of new models and the release of new software.  

Can I cancel my phone plan shortly after purchase?

You can cancel your phone plan shortly after purchase, during the first 14 days of your contract, free of charge. 

You can also cancel your contract without any additional fee e.g. if your network provider raises the monthly fee midway through.

 After that period, you would need to pay the cancellation charges, which can be quite high. By paying the fee, you can cancel your phone plan at any time, although some phone companies require a 30 days notice.