With phone prices climbing higher than ever, it’s no wonder most people turn to carrier financing to buy a new phone. Not only can you spread out your payments over time, but cellular companies often offer enticing deals to win customers over, especially if you’re switching to a new provider. Depending on the deal, sometimes you can even get your new phone for free.
But those deals can be a little confusing, and involve caveats and rules that aren’t always clear. Very rarely is a discount given without a catch. You might also come across terms like “bill credits” or “trade-in credits” that you don’t fully understand.
If you want to know what these terms mean or other details, like what happens if you decide to switch carriers midplan, read on as we walk you through what you need to know before accepting a new carrier deal.
This article was made possible in part by T-Mobile. It was written and edited independently without partner oversight.
What is carrier financing?
Simply put, instead of paying up front for a new phone, carrier financing lets you pay for the phone over time through an installment plan. So, for example, if a phone is $1,200, you can spread the cost over 24 months, which translates to just $50 a month. That’s a lot easier for most people to manage.
It’s worth noting that you will still need to pay upfront costs, like activation fees and taxes on the new phone, whether you’re on an installment plan or not. Sometimes carriers do offer deals that let you spread that out over time. T-Mobile, for example, has the Equipment Installation Plan Flex 36 that will spread out the payment of the device, fees and taxes over 36 months, making the initial cost zero. That said, you still need to qualify for the plan, and depending on your credit, you could have to pay interest on top of that.
One particular downside of carrier financing is that it locks you into that carrier for an extended period (usually two to three years). This means you can’t use your phone with another carrier during this time. If you want to end your agreement with the carrier, that will usually result in early termination fees, or ETFs.
Being stuck with a carrier-locked phone is sometimes bad news if you travel a lot and want to use international eSIMs, which only work with unlocked phones. Otherwise, you’ll have to use your carrier’s international data plan, which can be more expensive.
What are trade-ins and bill credits?
When shopping around for new phones, you might see the words “bill credit” or “trade-in credit” advertised by a carrier. For example, a carrier might offer a trade-in credit of up to $1,000 if you trade in your existing iPhone for a new one. Then they might say that the trade-in credit will be paid to you as 24- or 36-month bill credits.
What does all of that mean? First, let’s talk about that trade-in credit. Not all phones will be eligible for one. Often, the carrier will only give a trade-in credit for newer phones. The newer the device, the more trade-in credit you will get. So that out-of-date iPhone 11, for example, probably won’t be worth very much, if at all.
It’s also worth looking into what else is required for you to get that trade-in credit. Sometimes carriers will only offer the trade-in credit if you sign up for a more expensive monthly plan with services you might not need. Other times, however, the carrier just wants you to switch over, so you might not need to do that.
Let’s say you agree to the terms and the carrier offers you that $1,000 trade-in credit. Here’s where bill credits come in. If the carrier says the trade-in credit will be paid over 36 months of bill credits, it means that $1,000 will be paid off over the period of 36 months. You won’t get a lump sum of that $1,000 credit instantly, and the credits you do get can’t be cashed out and can only be used toward the amount of your phone bill.
But let’s say you don’t have a phone to trade in at all. You could still save some money if you don’t mind switching carriers. Sometimes carriers will offer to pay for your device as an incentive to switch over to their company. Again, device payments are often applied as bill credits spread over a 24- or 36-month period.
What happens if I pay off my plan early?
You can certainly pay off the remaining balance on your phone if you don’t mind paying the upfront cost. However, be warned that you’ll also forfeit any remaining credits you received for the device you traded in. You could also forfeit any other discounts that you agreed to upon signing up for the plan. Be sure to read through the early payoff rules before deciding to pay off your phone ahead of schedule.
What if I want to switch carriers?
If you want to switch carriers while you’re in an existing installment plan, you might have to pay ETFs to end your current agreement. However, most major carriers like T-Mobile, AT&T and Verizon will offer carrier-switching incentives where they’ll pay your ETFs for you. Bear in mind that there’s often a cap on how much of the ETF they will cover. The payment is also often in the form of bill credits.
You can take advantage of carrier deals when choosing this route. T-Mobile, for example, has a five-year price guarantee that locks in the price of text, talk and data for at least five years. AT&T is also attempting to draw new customers with a modular Build-A-Plan that lets you customize your plan according to your budget. Verizon recently introduced Simplicity, an unlimited phone plan that usually costs $45 a month, but is just $30 a month for new customers who bring their own number.
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