If you are ready to purchase a new mobile phone, you have some general options: paying in cash, paying over a set period using an installment plan, or buying the phone with a credit card.
Mobile Phone Financing Basics
Paying in cash for a mobile phone may not always be suitable for your budget. For example, the starting price of the iPhone 12 and iPhone 12 Pro (introduced in October 2020) is $699 and $999, respectively, before trade-in.
If you don’t want to pay cash for a new mobile phone, consider your financing options to determine the right step (if any).
Apple Card
If you are an iPhone fan, financing your mobile phone using the Apple Card may be a suitable option for you. This card allows you to pay for Apple product purchases over time in monthly installments with no interest. As an added bonus, you receive 3% cash back on everyday purchases of Apple products upfront, which is deposited into your Apple Card in the Wallet app.
Note: You must have a compatible iPhone and have the Wallet app installed to apply for the Apple Card.
Samsung Credit Line
If you prefer Samsung devices over Apple, you can use the Samsung Credit Line to finance the purchase of a new Galaxy phone. With this financing option, you can get a deferred annual percentage rate (APR) of up to 0% for up to 24 months. After 12 months, you have the option to upgrade to a new Samsung Galaxy phone with a credit limit of up to 50% of the purchase price – as long as your current phone (the one you are trading in) is in good condition.
Note: Deferred interest may be charged if you do not pay off the purchase of the phone within 6–24 months, as interest charges may apply retroactively from the purchase date. Therefore, deferred interest financing can be a very costly way to buy a new phone (if you cannot pay the full amount before the promotional period ends).
Carrier Financing
Another option is to transfer the purchase of the mobile phone to your account with your service provider. For example, Verizon allows eligible customers to transfer mobile phone and accessory purchases directly to their accounts. With this type of offer, you pay the amount due on the next billing statement.
This option does not give you much time to pay, but it is interest-free. You might consider it if you want a new phone now and will have the cash necessary to pay for it before the next billing statement is due.
Retail Financing
You can also finance your mobile phone purchase with some retailers. For example, Best Buy allows you to finance unlocked mobile phones at 0% APR when using a Best Buy credit card. You can also receive up to 10% cash back if you open a new retail store card for your phone purchase.
Note: Retail financing may involve deferred interest financing, meaning you must pay off the balance in full before the promotional period ends to avoid paying deferred interest previously accrued.
Credit Card
A credit card may allow you to earn rewards such as points or cash back on your phone purchase. You do not have to worry about deferred interest if you cannot pay off the purchase within a specified timeframe.
Installment Plans vs. Credit Cards
Installment plans and retailer financing offers, such as Apple Pay or phone financing with Best Buy, are not the same as credit cards for financing purposes.
Installment plans may allow you to:
- Pay without interest for a specified period
- Set a monthly payment amount
- Sign a new phone contract
- Get
- Credit for purchasing a new phone when disposing of the old one
- Deferred interest charges for a limited promotional period
On the other hand, credit cards charge an annual percentage rate (APR) on any purchase, including mobile phones, unless you are opening a new card with a temporary 0% APR. But unlike installment plans, you don’t have to sign a new phone contract, and you only need to pay the minimum due each month. A credit card may also allow you to earn rewards.
Note: When considering your phone financing options, check if the deferred interest charges apply and become due if the balance is not paid off in full after the promotional period ends.
Impact of Financing on Your Credit
Mobile phone financing can impact your credit in a few ways. These include:
- Hard inquiry on credit: You may lose some points in your credit score if the financing company you applied to makes a hard inquiry on your credit. If you have good credit, the impact may be minimal.
- Additional payment history: You have the opportunity to add positive payment history to your credit report. Payment history is the most significant factor in your FICO credit score, so mobile phone financing may improve your score if you make payments on time.
- Credit utilization ratio: Mobile phone financing with a credit card will affect your credit utilization ratio, or the amount of available credit versus the balances you carry. The lower your balances compared to your limits, the better your credit score will be.
Pros
- No need to pay cash upfront: One of the main benefits of financing anything is that you do not have to pay a large amount in cash. You can get the mobile phone you want now without depleting cash reserves.
- Mobile phone financing can help you build credit: Mobile phone financing can help build credit if you make payments on time and consistently. Improving your credit score makes it easier to get other types of credit and qualify for favorable interest rates.
- You may qualify for 0% interest financing: Mobile phone financing can save you money if you qualify for a 0% interest deal and pay off the amount in full before the promotional period ends.
Cons
- Your credit score may be negatively affected: Mobile phone financing may temporarily impact your credit score when applying for an installment plan or credit card. If you fall behind on payments, your score could be affected even more.
- Deferred interest financing can be expensive: A deferred interest installment plan can be costly if you do not pay off the balance in full before the promotional period ends. The deferred interest is applied from the purchase date to your account.
- You may have to sign a new contract: Mobile phone financing may require you to sign a new service contract. If you do not want to commit to a contract, consider financing the phone with a credit card or a retailer, or paying cash.
Thank you for using The Balance! We hope this article is helpful in making your decision about mobile phone financing.
Source: https://www.thebalancemoney.com/financing-a-cellphone-pros-and-cons-5090719
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