In the old days, buying and paying for a new iPhone was simple: you typically paid $1-200 up-front, then the rest of the purchase cost was absorbed by carriers into the monthly rates they charged for their contracts. There was no easy way to tell how much of that monthly payment was for calls/texts/data and how much was paying off the balance of the cost of the phone.
Today, things are very different, with carriers being much more transparent about what you pay for your contract – if you choose to have one – and how much you pay for the iPhone itself. The WSJ has put together a simple infographic outlining the main options open to you …
Let’s start with the flowchart then talk about each option. Note that costs are based on a 16GB iPhone – almost certainly not what you’ll want – and assumes pricing will be the same as last year.
So, there are three main routes you can take. First, renewing your existing contract for two years. This option looks pretty much like the old model, where you pay $200 up-front and continue to pay the same amount each month as you do now. You’ll be locked in for two years, and won’t be able to upgrade iPhone until then.
Second, buy your new iPhone – either outright for cash, or on a monthly instalment plan which runs separately from your service plan. At the end of the two-year instalment plan, the phone is yours to do with as you wish.
Third, rent your iPhone. When you want to upgrade, hand it back and you can begin a new rental contract for the new one.
In my home country, the UK, we’ve had the option of separate purchase and service plans for many years. Having done the sums, I always go for option 2: buying my iPhone direct from Apple for cash – unlocked and contract-free. This means handing over the full purchase price upfront, which is a lot of money in one hit, but I then sell my old phone on eBay. If you don’t want the hassle of eBaying it, there are a whole bunch of trade-in options – including direct to Apple.
I generally manage to keep my iDevices in mint condition, and I keep the box and unused accessories. I also take lots of good-quality photos for my eBay ad. Put all this together, and I typically get back two-thirds of the purchase price if selling after one year, or around 40% after two years. All-in, then, my cost of ownership of an iPhone is no more than a third of the purchase cost per year. Because that gives me the freedom to shop around for the best service plan, and am able to switch whenever I like, my total cost is always significantly less than it would be under a contract deal.
If you’ve read our roundup on what to expect today and are planning to pick up an iPhone 6S, which option will you go for? Take our poll and let us know your reasons in the comments.