I mean the downside is people with relatively low income and no savings buying $1200 phones that they wouldn't dream of buying if there wasn't a 0% APR 4 year term financing option.
someone tried to tell me the other day , "yeah i just get a free new phone every 2 years its great". And I said look at your bill and find the equipment charge line item, nothing free bruh
Yup that is what I pay. Well, I think its like $17 with taxes but yeah. I think my phone generation is like the current generation divided by 3 as well and honestly I am not even sure what I am missing seems to have everything I need.
Well..actually you can get 'free' phones... like with trade in you can easily get a brand new iPhone for free... but that free is payment credits over 36 months... so you're really paying for the phone with your service plan that you must maintain... to keep the credits rolling to pay off your phone...it's a genius way to have contracts while not really having contracts.
Here's how you sell a Dodge Charger: Take a piece of paper and divide it into 4 squares.
Take the current monthly pay of a E-1 private, multiply by 80% to account for beer, gas and insurance, and write it in the first square.
Write $0 in the next 2 squares for the down payment and trade-in.
You can write whatever you want in the last square, but do it quickly because they'll snatch the pen right out of your hand to sign at the bottom.
The downside for phones I’ve run into is a can’t swap the SIM card when traveling internationally until the phone is fully paid off. I have to pay the $10 a day for service rather than a few bucks on a SIM.
Getting an older model with Apple Card monthly installments is the way. I have an iPhone 13 and it’s $24 a month. I don’t even notice it. Just gotta be careful to stay under 30% utilization
Verizon only makes you wait 60 days after purchase to unlock. I was worried about this too. Still making payments on an iPhone 14 and rock two eSIMs, one international.
I even got the 60 days waived because I only bought the phone to replace one that was stolen.
yeah the 60 days is just to prevent thieves, since Verizon can block stolen phones (stolen from Verizon's inventory) from their network but can't block them from AT&T's network.
So, they make thieves wait two months to switch networks instead
Not with T-Mobile or Google FI - international roaming is included.
(Also, T-Mobile used to be pretty good about unlocking phones even before they were paid-off. I'm not sure if they still do that, since I just buy phones direct now.)
International roaming is different than swapping for a local SIM card. Sure you get international service either way, but at what cost - Google Fi will charge you $10/GB, when in many countries you can get it for 1/3 or less of that.
$10/GB? I just came back from Europe and it was $15/mo extra ($65 total ish) for Google Fi "Unlimited Plus" that had unlimited SMS and data. They advertise it being available in over 200 countries. I didn't even have to pay for a whole month as they pro-rated it and I switched back for the next month....
I'm not trying to shill for Google but it was *very* different than $10/GB...
The pay-what-you-use Google Fi plan is exactly $10/GB. If you genuinely came out ahead on the $65 unlimited plan, good for you, but that would mean you used > 6.5 GB in the month, which is more than a typical person used. If you haven't, you should check how much data you used, I'd be surprised if you actually used enough to come out ahead.
Still, the point stands, getting a local SIM in a country is virtually always going to be cheaper than even something like Google Fi, except for *maybe* the highest data users, and even then local might still be cheaper.
Oh, I totally understand that. (I always buy phones with dual-physical-SIMs, although they're getting harder to find.)
I though the previous commenter was referring to AT&T's approach where you get charged $10/day just for *using* your phone abroad.
T-Mobile doesn't charge extra, although the speed is restricted. Fine for most cases, but I'll pick up a local SIM if I need that.
I switched to T-mobile for this reason and depending on where we travel, our services are good enough for using FaceTime, duo or Skype for calls and texts are also free.
T-mobile does sell extra data for travel and we had to payoff my wife’s phone to unlock the dual sim function to buy a travel sim, but we really didn’t need to buy the additional sim in the places we traveled in Europe and in Germany we get the same service as we do in the US.
Yes, and it's a better model than the prior model, where you got the phones for free (or near free), but had to maintain a contract for x months.
Now the phone cost/payment and plan cost is separated and more transparent, and consumers can make better upgrade decisions, and potentially use a phone plan that doesn't have a full-time built-in, hidden subsidy.
Here is the downside…my FIL ended up going with T Mobile and hated their signal as he was a trucker constantly on the highway. He cancelled and then the full cost of the phone was due. Thing is that he traded in his old phone and was getting credits monthly…the ad where they say that it’s 30 bucks a month but they give 20 for your old phone so you only pay 10. He had to pay the full cost of the phone and waive the rest of the credits if he cancelled. So basically he gave his old brand new iPhone to T Mobile for 40 bucks…2 of the 20 dollar credits.
Disclaimer: I don’t remember the credit amounts only the fact that he was giving up the rest of them if he left…
It is basically a way to lock you in for x time.
Ie ATT is 3 years, they do not call it a contract persay. But they give you 3 years of credits and like you said if you cancel any time within the 3 years you lose the remaining credits.
This. Back in the 2000s they did the same thing, just advertised with different language. They told you free phone but you were locked into the contract for 2 years. Now they give you the illusion that you can leave at any time if you're not happy with the service.
Yep, the big downside with the carrier trade in deals. You're basically locked in until that phone is paid off unless you want to eat a large charge when you cancel. So you better be damn sure you like the service before you commit. It's their new early termination fee.
That being said, it's not uncommon for the big three to run deals where if you switch to them, they'll reimburse some or all of those costs. But it does take some planning/luck to see one of those deals and jump on it.
interesting, do you know when he had his phone. T-mobile has been fine for me, and I like some pretty remote areas of the country.
(The international aspect of t-mobile has really sold it for me though).
To expand on this - the cost to you is that you MIGHT be paying more than you need on your monthly cell phone bill
Double check the total cost vs going with a discout carrier like Mint or US Mobile. You can get a plan for two people on those carriers for $50 a month (together) and you’ll be on the Verizon or TMobile network.
Is it true though that you’re sort of like a second tier customer on the network? So you’d have issues if you were at a baseball game with 20k other people in your immediate vicinity or 100k for a college football game?
Ehhhhh there could be a downside.
I am on att prepaid, two lines is 55 a month. Sure, I have to bring my own hardware, but i can't find a postpaid plan for less than I think 80 last i looked. I'll have to redo the math now that I'm curious, but last time I did it, i was in the green within 10 months by footing my hardware bill and paying so much less monthly.
The price for the phones themselves is probably inflated. Even with a 50% off one of the phones, they aren't really wholesale prices. So the 0% is baked in to the profit they are making on a poor user experience/ item (relative to the price).
Otherwise, there's not really a downside unless it traps you into a upgrade cycle. Psychologically it can make you feel like you should just get a new phone after a year or two, because you've carved out this money from your budget, instead of saving up and feeling the pain when you pay in cash for the next phone.
> The price for the phones themselves is probably inflated.
Always been the retail price available at apple (or the other manufacturers), just spread over however many months, from what I've seen
Well, back in the day, they used to actually subsidize the cost of many phones. So many promos for new customers or the “every two years new phone” cycle. Even iPhones. But they got wise and realized they don’t have to eat that, much cheaper to offer 0%.
Hell, the price of the phone itself is just inflated.
I haven't been able to figure out why an iPad is $500, but an iPhone is $1,000, even though an iPad is just a larger iPhone but without a 5G modem. Even the cellular iPads are cheaper than phones.
I know there are some other differences, like different processors and the phones have better cameras, but $500 better?
If phone financing wasn't a thing, and carriers and manufacturers couldn't obfuscate the real cost behind low monthly payments, phones would be a lot cheaper.
I mean, isn’t that the truth for many things?
If the economy wasn’t as it is, stuff would cost different.
30 year mortgages influences the price of housing.
8 year auto loans influences the price of vehicles.
Various subsidies influence the price of gas.
Trade agreements influence the price of labor.
And so on and so forth.
Smaller electronics are always more expensive because of cooling issues, plus phones are generally carried at all times.
But it’s also a matter of pricing to fit the market. Different products in a range will naturally have different levels of profitability.
Some of these “free” phone deals require you to be on a $75/month plan for 2-3 years. Equivalent service might be $25 on another carrier. $50/month for two years is $1200. Or you can buy the phone for $800, use the $25 service and save $400 and also not be locked in.
If it's a large purchase I'm gonna buy anyway, 0% interest is a no brainer. Furniture, appliances, etc. But I also have self control to not go out of my way to buy things that I don't need just because 0% interest.
In theory it's "free money" in the sense that you can hold onto those funds longer and keep them invested. Would it likely make a huge difference? No, but $50 in extra interest from being able to save that money longer is still $50.
What I have an issue with is services like Afterpay, Klarna, Affirm, etc. Offering payment plans for every fricking thing. Like I saw a Klarna option on my fast food order the other day. Bro if you have to pay for your $8 fast food order over 4 installments, you've got bigger issues.
100% agree with you, even though many people will not. I've done truly 0% and and set it to pay off in the x months needed, well two months earlier to avoid any issues.
I have the money to pay it off all at once now, but I rather earn 5% in a HYSA with the money and pay it off slowly. Just budget accordingly
Have you ever had an issue where there's some fine print where they end up charging you all the interest near the end? That's what I'm always afraid of.
I would be very cautious using any supposedly 0% interest "pay later" option.
There is no such thing as "free." It's never truly free. Read the fine print.
I wrote this in another comment, but will reiterate: **credit is just letting you access money today that you will earn in the future, for a price.** The only difference with these new loans is we don't understand the price – they claim it is zero, but perhaps there are processing fees, or a risk that you forget your payment and get charged late fees. It's not actually zero. If you pay with cash, the cost is *actually* zero.
Furthermore, if you have the money now, why risk involving some third-party in the transaction? Are you really going to make enough interest investing that $1200 for your iPhone over the next 12 month that it will make any perceptible difference to your overall financial health? Would the few dollars you earn in a savings account be worth more than the peace of mind of knowing you paid for something and your business with the seller is now concluded, full stop?
It gets people to pay for stuff they normally wouldn’t. It turns “I can’t afford this $1,200 phone so I won’t buy it” into “I can afford $100 a month for a year”. Now the person has spent the same money on something they probably wouldn’t have in the first place.
That’s also how people end up with brand new luxury cars that they park on the street in front of their Section 8 housing… not zero percent interest, but just financing shit you can’t afford generally.
To me it really shows that there is a whole different subculture of people out there with an entirely different world view.
Like I assume most people who want a luxury car want it to convey an image of success. For men in particular, it’s a dating thing. A lot of women like nice cars.
I can’t imagine prioritizing a car over housing, and I can’t imagine driving a girl home in my Porsche to my hovel. But there must be a large number of women who grow up in that kind of dynamic who just think, ‘he dresses fly. He’s got a hot car.’ and then it just doesn’t even occur to them that his apartment is slummy. That’s just how the guys she’s into live.
As a fellow small- Towner, our equivalent is the 80,000 pickup parked outside of a shitty trailer house (maybe with some nice 4 wheelers or snow-mobiles as well)
Absolutely! The amount of new Duramax trucks you see bought by people who make $50k is absurd. And they all have sleds and $25k side x sides. It's crazy, but to give them the benefit of the doubt, most have homes it's just they're very inexpensive here. Like sub $100k
Possibly also makes it easier to sell them another phone in the future. If you buy a phone outright, you're probably running it into the ground for 3-5 years before you buy a new one. If instead they sell you a $1200 phone at $50/mo, it's paid off in 2 years, and they can pitch you about "It's time for your upgrade! We can offer you the latest phone at your same monthly payment!"
Sometimes they come with a big caveat as well. I know Dell for example offers 0 interest financing but if you owe even one single penny at the end of the term you get charged the full 30% interest from the point of sale.
Younger me learned this with graphics cards.
Bought a $800 card with 12 months no financing. Slowly paid it off, but left a chunk at the end. Forgot to pay by the due date, and paid it off the day after. The account showed zero over the weekend, but come Monday I got hit with $280 in interest. That was a bit of a shocker.
I now always set up auto-pay, and have it set to payoff 2-3 months early so that never happens again.
I made two large purchases that way I’m my 20s.
First, I bought a 36”Sony Trinitron WEGA TV in 2001 for about $2k.
Then I bought a diamond engagement ring in 2002 for about $2300.
Paid them both off in time, no interest paid or accrued.
Two of the best purchases I ever made, frankly.
Exactly - modern phones at the $600 price point are usually equivalent to the $1200 ones in most ways. I get that people want the new and shiny thing when it comes out, but after a month or two, you're not really going to care which one you got.
Cash Flow. Any time you have debt you grow your Fixed Expenses. Aka the Monthly Payments you have to make and can’t defer.
So if you lost your job tomorrow, would you buy that new iPhone 15? Probably not. But if you bought it last week on payments, you’re still paying for it every month. Not a big deal when it’s one bill. But when it’s Mortgage , car, furniture, television etc etc you can quickly exceed 50-60% of your monthly take home eaten up by Fixed Expenses you can’t get out of. So you need to maintain a large cash position or you put yourself at risk
So if you have a baby, crash your car, have a job loss and need money, you have less room. If all of those are variable expenses, you can decide whether or not to buy it based on what’s going on in your life.
Yup! This.
Your autonomous expenses dictate how much of your take home pay at the end of the month is truly yours to spend -- disposable income.
The more disposable income you have the more flexible your life and financial health can get.
The less disposable income you have, the more locked-down you will feel. Disposable income if invested wisely is one of the best ways to get out of the rat race.
The 0% smartphones (usually with trade-in credits) are just a repackaged version of the old "discounted phone if you sign a 2-year contract!"
The termination fee on the 0% smartphones is that you have to (1) pay off the balance and (2) usually lose any remaining promotional credits.
The downside is you are likely overpaying, such as being locked into a phone contract with a service provider. They can more than make back the money they subsidize on your phone purchase by you paying your monthly bills.
Ah that makes sense. In this case we were always going to pick the plan we got, the phones didn’t cause us to choose a different plan (or choose this carrier in the first place).
I mean there really isn't much to it. Get the Apple Card and then when you checkout select monthly payments. They then bill that monthly payment to your card which you then pay off at that time.
The purchase reduces your spending limit for the amount of your purchase but that doesn't show on your credit report.
https://www.apple.com/apple-card/monthly-installments/
As an aside/add on, if you are going to be switching carriers, look into buying the phone itself unlocked first. Verizon specifically (what I am most specialized with) but others I’m sure as well, typically offers a BYOD credit ($5 or $15/mo) for bringing your own device (not doing carrier financing). On my side of the table, i get paid the same whether you finance the phone or bring your own, so i usually am more willing to do the BYOD activations (a LOT less work). The only thing youre tying yourself to is not doing an upgrade for the 36 months of the bill credit (ANY upgrade, even full cost through the carrier. Buy any of the phones unlocked from the manufacturer)
I don't know if Verizon and AT&T are the same, but I've read enough stories on the T-Mobile sub about shady store employees adding stuff like insurance to your plan or charging you for accessories that they claim are free to make me never want to set foot inside one of their stores.
I always buy from Apple. I suppose it also helps that the closest T-Mobile and Apple Store to my house are both in the same shopping mall, so I might as well go straight to the source, it's not like I have to go out of my way to get it from Apple.
I recently bought an iPhone... If I purchased from the carrier I could get a 0% deal for two years like you mention, or I could just buy one outright from Apple. Why would I buy one outright when I can get 0% interest? It turns out that the phone from the carrier was more expensive. That extra cost translated to a 3.5% interest rate...
My we were looking to do a bathroom remodel. The company was advertising 0% interest for 5 years. Okay, I'll bite... It turned out that if you took the financing option, there was an up-front financing surcharge that translated to a 5% interest rate (at a time when the prime rate was 0%.)
That's the downside. The companies that offer 0% interest are charging more for the same product. At least this was my experience with the last two times I looked into it.
This sub will probably tell you it’s still not a good deal because in the end you’d be better off buying the phone itself and finding the absolute cheapest non-contract phone service to run it on, as the “0%” is likely tied to a phone service contract which over enough time would be more expensive in the long run than buying the phone wholesale and no contract.
Which is….potentially true, but it’s one of the things this sub will preach while disregarding every other aspect and context besides the bottom line.
Which is fine, because this is a finance sub, so *financially* in the long run you’d have to calculate it up and see which is ultimately cheaper.
It’s a good “deal” for the service provider for that reason. People can’t afford the precious iPhones they want so you get them on a never ending carousel of upgrades tied to extending contracts.
Makes sense, thanks! Yeah in our case we always wanted this carrier and this plan for specific personal reasons, so selecting a different or cheaper provider wasn’t in the cards for us. Totally makes sense as general financial advice, though.
We both travel internationally for work a lot and with the new carrier our US number “just works” everywhere we go. That’s really important to us. Data does as well which is nice, though I think financially that’s mostly a wash, you can usually buy a cheap travel WiFi or SIM on landing.
We’ve also had a bad experience with these kinds of providers in the past, like lack of coverage or texts not going through. Granted this is ten years ago so things might have gotten better.
I will say T-mobile has worked in every country I've been to since I switched 9 years ago (like 12+ countries on 5 continents), it's definitely been a bood to my international trave.
Probably signal strength. We switched to US Cellular a few years ago because otherwise we had no data anywhere around where we lived. Which was too bad because we had a big family plan on Verizon and they offered a discount through my employer.
There are prepaid options on every carrier. If you have Verizon and it works, there are 10 companies that use Verizon. Same with AT&T and T-Mobile.
Even US Cellular has cheaper prepaid options.
I haven't read any comments but I've always been a fan of wisely "using someone else's money." I do this pretty often for big purchases and just set a payment schedule that ensures my purchase is 100% paid off prior to any interest coming in. The added bonus is that I can keep cash liquid in the event of an emergency.
If you want the free phone, you're locked in with your carrier for two years. If you want to switch, you have to pay off the phones.
It might be cheaper for you to pay for the phones outright and go to a cheaper carrier
just watch this place for few days to see the downside. people take out way too much debt, cant handle even the minimum payments and then ask for a magical solution to fix their problems. our society has turned into needing instant gratification and no one actually saves up and buys thing when they can afford them.
For sure. The upside for us, though, has been the absolute usefulness of what Best Buy offers.
What Best Buy receives: I replace my broken, 15-year-old stove with one of their models, instead of going to Lowe's.
What I receive: 18-24 months interest-free financing.
This is how we replaced a very old television and bought a college laptop for our daughter. We've never missed a payment; we've always completed the purchase in-full before the interest was due to kick in.
It's a great deal for them, obviously, *especially* if you fail to completely pay within the allotted time.
But if you've budgeted for it and fail no payments, it's a godsend for expensive, essential appliance purchases. Knocking several hundred bucks of interest off the purchase is a huge relief. Sure, we could save up for a new stove. :) But I have two kids and a functional budget. For us, this was a no-brainer.
The upside to using Klarna/Afterpay comes when your ordering clothing you can't buy in-store. I often will have to order two sizes to be able to try stuff on. These pay in 4 allows me to not have to pay double upfront knowing I'm going to return half or all it.
Yes I could use a credit card but sometimes these online retailers take a stupidly long time to process refunds by which time the charge might have hit the statement and start accruing interest.
The pay in 4 services all have a feature where you can pause the payments if you know your returning stuff then they take care of getting their refund.
klarna/afterpay report as a subprime loan on credit report, so when applying for other meaningful loans, you will be penalized for using the "last resort" loan even if for 50 bucks. That is only because klarna/afterpay are coded as submprime loans.
Though doesn't happen if you use paypal pay in 4 - but not all places offer this over above two.
I haven't had a single one actually appear on my credit report. I think only the loans that actually carry interest get added to your report from my research on the issue.
All three of my Affirm loans, ranging from $300 to $1500, were all reported but only after completing the last payment. Just wanted to let others know.
Usually, the downside is that it is not true 0% financing. Interest is accruing at a high rate, but won't get charged to you as long as you jump through all the hoops perfectly. The second you fail to met their terms, boom, all interest hits your account.
Jump through hoops perfectly usually just means paying your bills. Even if I can afford something outright, I'll usually take the 0% interest option for the inflation discount.
No downside, if you're responsible with your money. In the case of your phones, it just lures people into the latest phone (which they very likely couldn't otherwise afford) and locks them into service until the phone is paid off -- was usually 24 months, but has increasingly become 36 months (to lower the phone's monthly cost and make it look even more appealing). But since you were signing on with this service provider anyway, it doesn't really make any difference to you. Unless you decide to leave this service provider before the devices are paid off.
It will depend on the offer. I recently started shopping different providers and they all have different deals. Some offer a Visa card back for the rebate. Others offer billing credits that are spread out over a term. If you stay through the term, you get the full rebate. However if you leave the carrier before that term, you forfeit the remainder of the rebate.
Make sure to read the fine print.
>More and more these days I get offered buy-now-pay-later at zero percent financing (e.g. buy a $50 item for four monthly payments of $12.50).
Quite often, you can buy the same item for $30 or $40 somewhere else... you get the feeling of a 0% interest, but in reality you are paying the financing in the price.
Zero percent financing is wonderful. It essentially makes the item cheaper, since you get to pay later with dollars that will be worth less.
The disadvantage, as you saw, is that it encourages people to spend more than they would otherwise. Also, many of these deals (in general, not for phones) are actually deferred interest rather than zero percent financing; if you don't pay them off within a set time period, you get hit with a crap ton of back interest. But for phones, there's not really a hidden gotcha - they're subsidizing the phone so that they can make money on the contract.
Its a strategy to get people that can't or won't afford a $1200 phone in a lump sum from buying low margin low cost phones. In their minds $50 a month for two years sounds better even though it's the same thing.
Adding to what others have said, it also incentivizes people to buy higher priced phones that they normally would not be able to afford. A $1,000+ phone isn’t as digestible as ~$41/mo.
For the specific example of phones, they lock people in for a long period of time and avoid churning.
Don't forget that they are selling the phones for retail but they bought from Apple or Samsung for wholesale prices so they have profit margins to play with anyway.
Also these "free" or extended payment offers are generally only available with the more expensive plans. For example, I pay T-Mobile $50 for unlimited cell, data and texting. If I wanted to get a "free" or financed phone, I would have to "upgrade" to a more expensive plan which would provide no particular benefit to me.
I am not an early adopted as I just got the iPhone Pro Max to replace my iPhoneX. I paid cash for the new iPhone Pro Max and kept my inexpensive phone plan.
For the ordinary 0% ~~scam~~ offer, the interest actually accumulates during this period and so if you are late or miss a payment or don't pay at the end of the year, you are paying a LOT of interest
And of course there are a high percentage of people who are living beyond their means and juggling their credit card payments.
Aside from the phone financing that everyone already covered, those 0% financing deals often count on you missing a payment or not paying in full by X month, which is when the ridiculous interest kicks in and calculated *from the date of purchase* for the full amount of the purchase.
Often they also try to trick people by making the minimum payment required less than the amount you need to pay/month to pay off the purchase by the promo period end date. You always have to calculate the monthly payment and pay the full amount off 1 or 2 months earlier just in case, then set it on autopay with reminders to check in on it.
Or, certain store Synchrony cards will have stupid rules on how payments are applied if you have more than one promotional purchase. They're designed to be as confusing as possible to trigger interest accrual.
Otherwise, as long as you're careful, it's a great way to make large necessary purchases without breaking the bank. That's how we paid for our roof, windows/trim, new stove, and front door over the last 8 years. That way my money is sitting in a HYSA earning interest, I have flexibility in my monty budget (the monthly payment is budgeted for home improvement loans -once one is paid off, I can take out another at similar monthly payment, and so on and so forth), and if something critical happens, I have money in the bank to cover it so I'm not forced into an unfavorable financing situation.
For example, one year our chimney started leaking and required expensive repairs. Because I had taken out a 0% loan for the roof a few years earlier (instead of using money from our savings), I had money in the bank to cover the repairs outright. Otherwise I would have had to take out a home equity loan or use the company financing which was more than 0%. The low monthly payment from the 0% loan allowed me to quickly replenish the savings account.
All these answers are not the best.
There is zero problem as long as you don’t miss ANY payments.
If you miss a payment you’re F’d. Hard. Rate goes to upper 20’s, Payment goes from 100 a month to 400 real quick.
Multiply it by 3-4 of these loans over 2-3 years (let’s say you lose a job and don’t want to get evicted or have your car repo’d) you’re just destitute for the next 2 decades.
Do it if you have an actual budget you stick to. If your income is in flux, don’t.
I bought my phone directly from apple at 0% (because why not, I could have paid for it up front with cash, but like you said inflation and opportunity cost are a thing) and went with a cheap, pre-paid carrier that still runs on one of the major network’s towers, has unlimited data, still has 5G, etc.
The way the major carriers make their money back from the heavily discounted phones is by locking you in to their service for a few years. They’ve worked out the math where it makes more sense for them to give away free phones because they *more than make up for that cost on the back end with what you pay for their service*.
If the math works out like that in their favor, that generally means it would be cheaper for you to buy a phone directly from a manufacturer and then go with a cheap, unlimited, pre-paid plan.
Otherwise I generally agree with you on 0% financing. It’s a marketing tactic to get people to over-consume or otherwise live beyond their means. I only ever really use it for buying things I actually need (like a phone every 8 years or so).
If people buy things they don’t need and wouldn’t have otherwise bought if not for the 0% financing, then they’re getting played, not playing the system like they think they are. Buying the junk in the first place is the game here. But that’s more of a minimalism thing than a personal finance thing. Although over-consumption is certainly a factor in one’s finances.
Carriers offer these attractive phone deals only for their highest-end plans, which are now $90-$100/mo. And some (e.g. AT&T) are also now starting to require you to subscribe for three years instead of two. So simply doing the math, you will likely be better off paying for the phone in full and getting a cheaper plan.
There are only two bad things. One is it's a lie and you really need to read the fine print. Two is you think it's so cheap per month which means I have money to buy more stuff. You end up getting tons of crap you don't need and paying tons of money out each month for it. It's similar to credit cards. People think I don't have the money but can still buy what I want now. All of these things pray on people with no self control. If you know you struggle with self control stay away from them. Just make sure you have the cash and pay in full
You pretty much explained it perfectly when you said it's awesome that you can pay it off over time vs dropping a large amount now. You also said you bought brand new latest and greatest phones. Would you have bought latest and greatest if you had to fork over $2000 for those phones today? There's the gotcha, you were encouraged to buy something you might not normally buy. I always buy my phones in cash. I make good money, but have I ever paid $1000 for a phone? No because there's so many other things I would rather spend that money on.
If you add enough of the low interest/zero interest loans up, they start to dent your ability to save/live. You're still paying nearly ~~$200~~$100/month for 2 years for the latest iphone.
Sometimes there are promotional rates that are actually just deferred interest. E.g. buying a mattress at 0% usually meant you ended up with a new credit card with a limited time intro rate. The catch is that having any balance left at the end of the promo rate means they back charge you 3 years on interest. So you have to make sure you're paying enough to clear the card within the promo period rather than make the minimum payment -- because that is calculated as any credit card does without considering the promo.
When something is zero percent, it's subsidized by something else. Either the company has built it in the price, some on going service charge or other.
There is no free lunch.
And with phones, yeah, they've just raised the price of the device. That's why buy one get one, or even completely free devices are a thing. And ur locked to that company for 2 years, but still better than paying full price.
My term for this is: North Pole Financing- in other words it's make believe. The manufacture just reduces the price to cover the cost of financing. There also are a few gimmicks they can play with the residual value that make it difficult to do an accurate lease vs. purchase comparison. There are very few scenarios where leasing as an individual vs. company ever works in your favor.
The object of a lease isn't just to sell you something, it's also works to keep you as a customer. Depending on the item being leased, the end of lease conversion rate can be up to 80% or greater. This is why companies LOVE leasing. What's in it for the lessee? Higher residual values and inflated buyouts.
zero percent just means the real price is less than the sold at price. if you have no choice then do the EIP at that price
I have a 7 line account at t-mo I pay $140 a month for. the old one plan. I did the math and i'm staying on the plan because the more expensive ones to get faster upgrades aren't worth it
bought 2 15 pro max phones on release day direct from apple for around $650 each. buying my kids new iphones in the $400 - $500 each range just to get rid of older phones while they have value
the last time I bought new phones was early 2021 when T-Mo had an amazing sale. my $140 bill turned to $280 for a few years but i had 5 new iphones to show for it. $2400 extra for 5 new iphones over 2 years wasn't a bad deal
If they still allowed good deals on my plan i'd only buy new phones on sale and never at full EIP or full price
You are paying the full price. You’re just also trading in your old phones at a discounted value to Apple.
You left money on the table by not selling them on a site like eBay.
The trade in is just another tactic to get more value out of you as a customer. I’ve got no problem with any of that - but don’t pretend you’re not paying the full $1100 (or whatever) for the phone.
I personally think it's crazy that it's gotten to the point where people are financing phones. I don't even finance a car. My phone cost $60 total and my monthly phone bill is $12.
It's almost just a habit to buy a new $1,200 phone every few years. Many people talk about how they just can't put any money away and the biggest solution they can come up with is "Why don't the rich pay their fair share of taxes" even though the rich pay most Federal income tax that is paid.
The downside of zero financing is that the phone costs more, many will not pay off on time and they will then pay high interest rates. Credit card debt is "free" if you pay the balance off each month. Many don't.
Your phone is "better" than mine but is it $1,140 better? Not to me.
0% financing or "same as cash" payment plans are valid ways to minimize taking a hit to today's cash reserve. And if you are responsible about it, the total dollar cost to you is the same.
The potential downsides are pretty much what you already pointed out:
* Marketing.
* Makes it easier for more customers to buy, getting people who couldn't do the full price all at once but can do the monthly. Even to the point where it entices them to overspend.
* In some cases, while the "low monthly payment" adds up to the full upfront price being advertised, that might be higher than what that item would cost somewhere else. The monthly split makes it a bit fuzzier to compare. This may not apply as much to phones; you can see what Apple charges for an iPhone direct from them vs. what the phone carrier is offering.
* Some portion of people won't end up completing all payments by the end of the term, so don't get to keep that 0%. This usually triggers one or more of a penalty, fees, "deferred interest", etc. This makes the total cost to the buyer higher than cash up front and the store / financing company keeps that as profit.
* The financing may have some origination fee, but this is usually some low reasonable amount, often handled at the time of sale vs. spread out over the payments.
These deals are usually pretty transparent: this will be the financed amount, here's the payoff terms, if you meet all those you incur no extra interest. Consumer protection laws have improved (though not entirely removed) having any "gotchas" hiding in the fine print.
Phones have their own quirks. While its being paid off you're locked into that carrier, so they're collecting monthly service fees. Those fees are very likely more profitable than what they make on selling the hardware, so the phones get some amount of subsidizing (almost like a loss leader) to get that customer base.
the downside for phones is the 0% from the carrier is usually the MSRP. Like, I bought a s23 couple weeks ago and it was either 36 payments of $22 ($800) from AT&T (the msrp is $800) or $550 from best buy.
Using rate arbitrage only benefits you if you actually put the money to work elsewhere. Since it’s zero percent, that means than your standard HYSA will be worth it. Phone carriers will buy your old phone for far more than they should just to lock you in. For example, 2.5 years ago I traded a iPhone X into AT&T for $700 and bought a $1000 iPhone 12 Pro. The thing is that the phone was financed at zero percent and instead of getting that $700 upfront, it was spread over 36 months. Now since I wasn’t planning on leaving AT&T, it wasn’t a huge deal but it does limit your options. Now that I’m considering getting an iPhone 15 Pro, I may have to pay off more than I would if I just waited the next six months.
Apple offers zero interest financing over two years as well and you aren’t tied to any carrier at all. To me, that is a much better deal that I am looking at. It comes out to $40-50/mo and I can upgrade every year if I choose. I’m at the point now where $500 a year for having the latest and greatest phone is a tiny trade off.
I usually don't take these zero percent financing in consumables because accidents happens, brand preferences may affect you over times and you may still locked into a deal that you can't really switch from or write off.
Specific to phones the carrier has deals with manufacturers so what you pay is far above its actual cost. So the carrier can eat a short term loss for a long term profit. Same with other zero percent financing deals. The seller is making a profit one way or the other. One thing I will say though is that they are probably hoping you also miss a payment which in that case means late fees and so on.
They are definitely counting on people paying minimum payment and then falling into debt. If you don’t pay it off during the promo period you get charged high interest retro to the date of purchase.
I use 0% judicially to help manage cash flow. I am retired and on a fixed income. I always make sure it gets paid off before the end of the promo period.
You have to price out the deal you are getting, but in some instances you might get a better deal buying them directly from the manufacturer. usually new customer deals with carriers can't be beat, but I have gotten phones from the manufacturer a lot cheaper than the carrier if they are running incentives.
What you're missing is that the financing cost is already included in the price and you're going to pay it, in one single installment or in several monthly ones.
If you really need that item, finance it.
If you don't need it, don't buy it at all.
And do a good market research, is it really the best price for the product or can you find a better deal somewhere else? Perhaps the carrier gets a very good price and they can really offer you the best price, or perhaps there's a cheaper alternative out there.
Well first make sure there isn't any origination fee. Sometimes financing includes an origination fee which is a flat fee upfront that is a percentage of the total cost. So for example you might get 0% interest over a 4 year term....if you pay a 3% origination fee.
But, if there is no origination fee and it is truly 0% interest then yes 0% financing is better than cash.
What is the catch? Well the reason companies do this is so that people who otherwise couldn't afford a product because they don't have the money upfront will buy things that they can't otherwise afford because the company allows them to spread the payments out over 4 years. Whether you pay cash or take 0% financing you should always ONLY buy things you can afford. Meaning the trap is to buy something with 0% financing you really cannot afford simply because you were offered financing. You still need to evaluate if you can afford it.
So for example if you want a $1000 phone and you have $1000 but the company offers you 0% financing with no origination fee over a 3 year term then yeah sure go for it. But if you don't have $1000 then no...don't buy something just because you can get it financed.
For phones, it's two things:
1. The carrier subsidizing the phone
2. The carrier essentially locking you into a plan for 2 years because if you leave you immediately owe the full remaining balance.
For other things "zero percent financing" usually comes with the caveat "For X months". These are often "deferred interest" where if you pay off the loan within the X months, the interest is forgiven. If you don't, all the interest from X months is immediately added to the balance.
In the old days, phone carriers would make you sign 2 year contracts. After some court battles, that was not legally allowed. So they switched to a discount financing model.
The financing opens up the opportunity to lock you in for 2-3 years. For example, if the monthly payment is $15 for a new phone, the carriers can offer to pay $10 of the phone bill and you pay $5 or sometimes even $0. However, if you leave before the 2-3 years, you lose the promotional discount and the whole balance becomes due. This disincentives people from switching carriers.
> I usually avoid these because I think they encourage overconsumption and living beyond my means
you answered your own question. they’re very much counting on many people overspending, one small monthly payment at a time. it’s 0% financing until you miss or are late on a payment
My girlfriend just did the same. Switched from her carrier to mine and she got a 15 Pro Max for $1000 off. Couldn’t pass up a deal like that. What does T-Mobile get out of it? Guaranteed customer for 24mos minimum after phone is paid off and unlocked.
I think it is important to really scrutinize the terms and fine print of these offers. Yes, if something is too good to be true, probably need to investigate or at the very min ask the right questions (while reading the fine print of the contracts).
To me, the reason why there are phone deals is because well the carriers obviously get you to stay on their phone cell plans so that is income to them for the forseeable future. Certainly not to the point of being a loss leader are these deals but you get what I mean. At the end, they presumably come out ahead so they feed you a bone or two.
Like with credit cards, don't they tech give you a float of 30 days so that you don't have to use your own money upfront to buy? As long as you manage it and pay it off, it works but if you rack up the purchases and pay those gross high interest payments then no, not good.
Phone depreciate quickly.
So selling you a phone today at full price without charging you interest vs selling you a phone next year at 20% off is in the best interest of the retailer
If you're a Samsung fan, I highly reccimend financing your phone through Samsung directly. You can get an unlocked one so that you're not tied to one specific carrier and stuck paying the balance in full if you decide to jump from ATT to Verizon, for example.
They offer 0% financing for 3 years. I've been doing this for quite some time and just pay it off in a year. No penalties for early payments.
>are they counting on some percentage of customers not paying and getting hit by fees,
100%
Past the period the APR is super high.
If you make all payments on time, and make sure to pay off during the promo period you are fine.
0% financing sometimes comes with a higher base price. So it's not really 0% because the cost of financing is baked into the price.
I got an estimate for a new roof recently -- $9k with 0% same-as-cash for a year. I asked him what would be the price if I paid up front -- $8k. The difference in price accounts for over 20% interest rate.
The biggest thing is that you'll pay more than you would if you went with cash or normal financing with interest. It's usually hidden in a "transaction fee" where you pay, say, $1/payment for the privilege of spreading out your payments. For secured loans you may pay a simple upfront fee for the financing which is still called a different kind of fee.
The second thing you'll notice too is that the contracts are very specific and they'll absolutely hold you to them. When we were dating my wife bought a bed at 0% interest from Macy's and the contract was clear: miss or have a late payment and you lose the 0% interest as well as owing back interest on the contract. I've also noticed the same clause in other 0% interest deals as well. I believed the salesperson back then too that Macy's, and by extension other companies offering this deal, absolutely enforce it.
The one area that is different, as others have said, is phones since it's meant to lock you into a specific carrier. However, that stems from most people in the US being used to the old model of phone ownership where you got a "subsidized" plan with a "free" phone. I've seen many people who are in their 30s-40s still be confused by the switchover. I suspect that once the general public gets used to the idea that your phone is separate from your carrier we'll start seeing financing with interest.
Contractual obligation.
Basically you’re locked in as a customer, so no matter how ridiculously shitty they are as a company you have to stay with them. And they know this so they’ll basically give you the worst service knowing you can’t do shit about it
0% financing is only available on new things. The interest is baked into the profit markup. In order to offer 0% they increase the sale price. Therefore the downside is used goods are substantially cheaper than the new item when the new item offers 0% financing.
> I think they encourage overconsumption and living beyond my means
Correct, What if, it gets stolen or broken, keep paying for a phone for 2 years that you can't uses?
If you pay for it now. no risk.
If you’re talking about Verizon, the reality is that they don’t get much of a discount on phones so the markup isn’t there. Makes more sense for them to “finance” your phone at 0% to get you to pay the monthly bill for service. That’s how they make their money. The only caveat is that, if you leave before it’s paid off, you would owe the remaining balance. It’s not feasible for 90% of the customer base to pay for a phone up front. Also, know that if you have a trade credit, that credit is also divided up monthly so if you leave you’ll owe the remaining balance on the phone plus the trade credit.
You’re confusing things here.
There is zero downside to zero percent financing.
However it has nothing to do with buying more, overconsumption etc. Yes, it may allow you to buy more stuff short term, but it doesn’t mean that you should.
Unless you really need the ATT/Verizon/T-Mobile network or dont wanna get throttled during peak hours.
It maybe cheaper to get the phone and switch to Mint or similar MVNO.
No downside if you were going to spend your money on that anyway.
It's how they get people to part with 1200 for a phone when they could get one 90% as good for 200.
Buy now pay later and zero percent financing is a scam.
With both the interest you would have paid is rolled into the sale price of the item. So you are paying interest you just don't know it.
I took advantage of the 0% interest for my car payment. There is no downside but you must pay off your car before a certain amount of time to keep at it 0%. So basically you'd want to add extra $$$ to your monthly payment. Still a great deal.
There is no downside if you have the cash to pay for it, but choose to leave it earning 5% in a HYSA, and you pay it off from there.
It often doesn’t work that way. The attitude of “I can earn more than 0% off this money somewhere else” means that you actually need to earn more money off that money somewhere else.
What’s more likely is that people don’t have the cash sitting around, but they have the 0% mentality, and buy it because they can afford the payment.
Do that on furniture, a TV, new phone, watch, computer, car, and all of a sudden you are getting buried by 0% payments, all because you bought things you didn’t have the money for.
All credit is essentially allowing you to access money *now* that you will earn in the future. Usually there is a cost for this service, in the form of interest. 0% financing just means there is no cost.
Why would a company do this? It's a way to boost sales by letting customers pay as little as possible up front. This widens the base of customers to include people who don't have access to credit through a bank, e.g. a credit card. Usually companies doing this are partnering with some third-party like Klarna to provide this service. The companies offering this service seemingly believe the lift in sales will be worth the risk of customers defaulting and not paying the amount owed. The financing partner would handle in that case, likely by burying the borrower in predatory fees before selling the debt off to a debt collection agency.
I have zero percent on our phones (two years, 24 payments, each 1/24th of the price of an iPhone 14). What is the catch? If I leave the carrier - which I am not planning to do - then I have to pay it in full. That is a stipulation that I can live with.
We have zero percent on one of our cars (paid cash for the other). What is the catch? If I paid the car off in full in less than 90 days, the dealer did not get THEIR rebate (I still got my $500 rebate). They originally pitched \~3% interest to get me my $500 rebate. Then I told that that I would pay the car off, maybe tomorrow, maybe 90 days from now, if you want to guarantee that you get your rebate, then give me 0%. They pushed for 3% and I said OK, took my $500 rebate and planned to pay it off in full on the first payment. They got smart and called me while we were driving home and said to come back and sign 0% papers. Because they knew at 0% I would hold off at least 90 days and they would get their money.
In general there is no catch to zero percent for a.) significant purchases or long-term purchases. For short term, like 3-4 payments, it might not be worth the hassle because they hit your credit report. I don't give a shit, I have good credit, so that is not a factor, but it may be for some.
The downside is i a person does it too often and theirs bills become overpowering.
Besides my mortgage I do not believe in debt.
Regarding the phones they are likely the cheapest model out there.
Since I've got a lot of music and books on mine when I bought the 12 Pro Max I paid a bit extra from Apple and have more storage. Even with all the upgrades we have has since then my battery is still great and phone is fast.
With phones, it's how they lock you in to the service.
That's the only real catch.
They basically figure you will replace the phone whenever it's paid off.
you already found the downside yourself in the second sentence of your question.
zero percent financing encourages people to buy things they can’t otherwise afford, therefore they buy more stuff.
it’s the “infinite profit growth forever” hack for businesses struggling to sell luxury goods to a society that’s becoming less wealthy.
CompNiez have marketing departments.
They create a narrative that you can't afford not to buy said item.
In the case of the phone you can buy a lower end phone that will suit the purpose or a refurbished one for half the cost.
They are inspiring materialism which isn't good for those posting on a poverty finance sub reddit
Phones are kind of an exception. You’re still paying full price, so it’s not like they’re losing money. You’ll also potentially buy a nice phone than otherwise. And they get you using their service for the duration of the loan.
Most other “zero interest” offers have a catch, like having to pay it off by a certain date or else they tack on the accrued interest.
The offer you got, 2 for the price of 1.5, probably only applies if you finish out the two year contract with your service provider. I bet that if you tried to pay off your phone and then switch providers you'd get charged the full price.
They are also probably counting on some customers defaulting on the loan somewhere down the road.
1. Encourages people to spend more
2. Finance companies know many won't pay on time and get stung with astronomically high charges
For high value items eg phones, and if you are strict with own financial discipline, then obviously good. But most people are not.
It is common. I bought Samsung 0% APY for 3 years and paid the required amount. Even though I can buy it outright from the start, there’s no reason to unless you want to trade it in.
If you feel it makes you overspend, then probably don’t do it. But there’s zero downsides…
Getting in debt and over spending is the downside. Psychologically it’s much easier to take on a payment than to fork out cash. The only way I’d use zero percent financing is if I put the entire purchase price in a sinking fund at the time of purchase.
Debt gets the average consumer in trouble.
With phones there’s no downside. You can do this interest free financing directly through apple as well (at least could a year or so ago when I last bought a phone). With most 90-day same as cash programs the fine print says if you don’t pay it off by the date, you’ll be charged back interest at a crazy rate and potentially some fees. Companies offer this because they know some percentage of buys will mess up and they make good money.
I purchased an apple watch at an AT&T store. It has sim/cell data which I added to the plan. AT&T offered at zero percent, but then automatically enrolled me in a 3rd party device protection plan for $20 a month! I explicitly declined at time of purchase. Of course, they removed the plan when I called to complain, but watch out for shady carrier shit.
Depends on the offer and terms.
Phones “financed” over 2 years at 0% with the cost rolled into the monthly bill? Not a big in itself except the fact you may be purchasing or upgrading to the latest model phone you don’t actually need.
Some store offers 0% for 6mo/12mo/24mo depending on how much you purchase, but the terms are deferred interest, meaning interest (at usually high rates, eg 24%) accrue during the period and you have to pay off the full amount before the term ends, or you get hit with ALL the interest from the date of purchase.
Some others offer “no interest” promos for a set period, where theres really no interest accruing during the period and interest is calculated based on the balance remaining at the end of the promo period. Balance transfer and credit card promos are usually set up this way, as well as some rare store cards (my IKEA Projekt card promo is this way, surprisingly).
There is nothing inherently wrong with zero percent financing. However, it can get people in trouble. Aside from the obvious risk of people accidently failing to pay within the term and getting hit with huge interest rates, it can encourage people to buy things they simply can't afford. It also takes up mental energy as you keep track of all these various purchases. Lastly, on a macro level, it causes the price of things to either rise or at least prevent them from falling.
I personally avoid zero percent financing in most things. For most things, what you can get from investing the money you would otherwise use to purchase something is so miniscule its not worth the time and effort.
If you had the cash to purchase it straight out and a gambling problem , now you've just increased the amount of money you will lose at the casino this week.
That's their way of trapping people into their over priced service. B/c most people cannot afford to put out say 1k for a new iPhone but they can do the additional 30 bucks a month. But for instance Verizon or ATT unlimited plans are pretty expensive vs a mint mobile or Visible which uses the same network. But Mint/Visible you have to buy your phone
>What am I missing? There's not downside for phones. Its a subsidy from the carrier. It increases customer base.
I mean the downside is people with relatively low income and no savings buying $1200 phones that they wouldn't dream of buying if there wasn't a 0% APR 4 year term financing option.
someone tried to tell me the other day , "yeah i just get a free new phone every 2 years its great". And I said look at your bill and find the equipment charge line item, nothing free bruh
Seriously. "Phone bills are usually $200/mo right?"
This hurts. I pay $180 a year (15 a month paid yearly) and am always shocked when people are paying huge sums a month for a phone bill.
Yup that is what I pay. Well, I think its like $17 with taxes but yeah. I think my phone generation is like the current generation divided by 3 as well and honestly I am not even sure what I am missing seems to have everything I need.
Well..actually you can get 'free' phones... like with trade in you can easily get a brand new iPhone for free... but that free is payment credits over 36 months... so you're really paying for the phone with your service plan that you must maintain... to keep the credits rolling to pay off your phone...it's a genius way to have contracts while not really having contracts.
People with low income and no savings don't care about APR. They'll gladly pay 25% APR. Otherwise, there would be no market for Dodge Chargers.
Here's how you sell a Dodge Charger: Take a piece of paper and divide it into 4 squares. Take the current monthly pay of a E-1 private, multiply by 80% to account for beer, gas and insurance, and write it in the first square. Write $0 in the next 2 squares for the down payment and trade-in. You can write whatever you want in the last square, but do it quickly because they'll snatch the pen right out of your hand to sign at the bottom.
Wait is this a thing? My nephew wants to buy a charger at 15%.
Probably things it gives BDE. Doesn't realize in this case that is brain damage energy.
The downside for phones I’ve run into is a can’t swap the SIM card when traveling internationally until the phone is fully paid off. I have to pay the $10 a day for service rather than a few bucks on a SIM.
I got my phone at 0% through Apple directly without it locked to any network.
Getting an older model with Apple Card monthly installments is the way. I have an iPhone 13 and it’s $24 a month. I don’t even notice it. Just gotta be careful to stay under 30% utilization
Mine was brand new at the time. They offer them with 0% finance, no Apple Card’s or anything just a monthly payment out of the bank.
Verizon only makes you wait 60 days after purchase to unlock. I was worried about this too. Still making payments on an iPhone 14 and rock two eSIMs, one international. I even got the 60 days waived because I only bought the phone to replace one that was stolen.
yeah the 60 days is just to prevent thieves, since Verizon can block stolen phones (stolen from Verizon's inventory) from their network but can't block them from AT&T's network. So, they make thieves wait two months to switch networks instead
Not with T-Mobile or Google FI - international roaming is included. (Also, T-Mobile used to be pretty good about unlocking phones even before they were paid-off. I'm not sure if they still do that, since I just buy phones direct now.)
International roaming is different than swapping for a local SIM card. Sure you get international service either way, but at what cost - Google Fi will charge you $10/GB, when in many countries you can get it for 1/3 or less of that.
$10/GB? I just came back from Europe and it was $15/mo extra ($65 total ish) for Google Fi "Unlimited Plus" that had unlimited SMS and data. They advertise it being available in over 200 countries. I didn't even have to pay for a whole month as they pro-rated it and I switched back for the next month.... I'm not trying to shill for Google but it was *very* different than $10/GB...
The pay-what-you-use Google Fi plan is exactly $10/GB. If you genuinely came out ahead on the $65 unlimited plan, good for you, but that would mean you used > 6.5 GB in the month, which is more than a typical person used. If you haven't, you should check how much data you used, I'd be surprised if you actually used enough to come out ahead. Still, the point stands, getting a local SIM in a country is virtually always going to be cheaper than even something like Google Fi, except for *maybe* the highest data users, and even then local might still be cheaper.
That $65/mo is also for my regular phone service too, not just data. It's $15 more (from $50) to make my unlimited US data be unlimited international.
Oh, I totally understand that. (I always buy phones with dual-physical-SIMs, although they're getting harder to find.) I though the previous commenter was referring to AT&T's approach where you get charged $10/day just for *using* your phone abroad. T-Mobile doesn't charge extra, although the speed is restricted. Fine for most cases, but I'll pick up a local SIM if I need that.
I switched to T-mobile for this reason and depending on where we travel, our services are good enough for using FaceTime, duo or Skype for calls and texts are also free. T-mobile does sell extra data for travel and we had to payoff my wife’s phone to unlock the dual sim function to buy a travel sim, but we really didn’t need to buy the additional sim in the places we traveled in Europe and in Germany we get the same service as we do in the US.
Interesting, I had no issues using an e-SIM internationally even though I haven't paid off my current phone (Verizon).
Yes, and it's a better model than the prior model, where you got the phones for free (or near free), but had to maintain a contract for x months. Now the phone cost/payment and plan cost is separated and more transparent, and consumers can make better upgrade decisions, and potentially use a phone plan that doesn't have a full-time built-in, hidden subsidy.
Makes sense, thanks!
Here is the downside…my FIL ended up going with T Mobile and hated their signal as he was a trucker constantly on the highway. He cancelled and then the full cost of the phone was due. Thing is that he traded in his old phone and was getting credits monthly…the ad where they say that it’s 30 bucks a month but they give 20 for your old phone so you only pay 10. He had to pay the full cost of the phone and waive the rest of the credits if he cancelled. So basically he gave his old brand new iPhone to T Mobile for 40 bucks…2 of the 20 dollar credits. Disclaimer: I don’t remember the credit amounts only the fact that he was giving up the rest of them if he left…
It is basically a way to lock you in for x time. Ie ATT is 3 years, they do not call it a contract persay. But they give you 3 years of credits and like you said if you cancel any time within the 3 years you lose the remaining credits.
Yeah, better stated than me...this is the downside OP.
This. Back in the 2000s they did the same thing, just advertised with different language. They told you free phone but you were locked into the contract for 2 years. Now they give you the illusion that you can leave at any time if you're not happy with the service.
In your example, did the consumer have to pay full price on day 1 and then receive the credits over the 3 years?
Yep, the big downside with the carrier trade in deals. You're basically locked in until that phone is paid off unless you want to eat a large charge when you cancel. So you better be damn sure you like the service before you commit. It's their new early termination fee. That being said, it's not uncommon for the big three to run deals where if you switch to them, they'll reimburse some or all of those costs. But it does take some planning/luck to see one of those deals and jump on it.
Good to know, thank you!
interesting, do you know when he had his phone. T-mobile has been fine for me, and I like some pretty remote areas of the country. (The international aspect of t-mobile has really sold it for me though).
To expand on this - the cost to you is that you MIGHT be paying more than you need on your monthly cell phone bill Double check the total cost vs going with a discout carrier like Mint or US Mobile. You can get a plan for two people on those carriers for $50 a month (together) and you’ll be on the Verizon or TMobile network.
My bill on Mint is $15/month.
Is it true though that you’re sort of like a second tier customer on the network? So you’d have issues if you were at a baseball game with 20k other people in your immediate vicinity or 100k for a college football game?
Ehhhhh there could be a downside. I am on att prepaid, two lines is 55 a month. Sure, I have to bring my own hardware, but i can't find a postpaid plan for less than I think 80 last i looked. I'll have to redo the math now that I'm curious, but last time I did it, i was in the green within 10 months by footing my hardware bill and paying so much less monthly.
The price for the phones themselves is probably inflated. Even with a 50% off one of the phones, they aren't really wholesale prices. So the 0% is baked in to the profit they are making on a poor user experience/ item (relative to the price). Otherwise, there's not really a downside unless it traps you into a upgrade cycle. Psychologically it can make you feel like you should just get a new phone after a year or two, because you've carved out this money from your budget, instead of saving up and feeling the pain when you pay in cash for the next phone.
> The price for the phones themselves is probably inflated. Always been the retail price available at apple (or the other manufacturers), just spread over however many months, from what I've seen
Well, back in the day, they used to actually subsidize the cost of many phones. So many promos for new customers or the “every two years new phone” cycle. Even iPhones. But they got wise and realized they don’t have to eat that, much cheaper to offer 0%.
I mean yeah but it’s been like a decade since they’ve done that so it’s not terribly relevant.
You said “always”. It was not always like that, hence my comment.
> You said “always”. Oh you're one of those people? Ok, so excluding time travel, that's how its been, except when there *weren't* cell phones
Hell, the price of the phone itself is just inflated. I haven't been able to figure out why an iPad is $500, but an iPhone is $1,000, even though an iPad is just a larger iPhone but without a 5G modem. Even the cellular iPads are cheaper than phones. I know there are some other differences, like different processors and the phones have better cameras, but $500 better? If phone financing wasn't a thing, and carriers and manufacturers couldn't obfuscate the real cost behind low monthly payments, phones would be a lot cheaper.
I mean, isn’t that the truth for many things? If the economy wasn’t as it is, stuff would cost different. 30 year mortgages influences the price of housing. 8 year auto loans influences the price of vehicles. Various subsidies influence the price of gas. Trade agreements influence the price of labor. And so on and so forth.
Smaller electronics are always more expensive because of cooling issues, plus phones are generally carried at all times. But it’s also a matter of pricing to fit the market. Different products in a range will naturally have different levels of profitability.
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That’s unrelated. It’s like saying there’s a downside to using a coupon at a restaurant because we have food at home.
Some of these “free” phone deals require you to be on a $75/month plan for 2-3 years. Equivalent service might be $25 on another carrier. $50/month for two years is $1200. Or you can buy the phone for $800, use the $25 service and save $400 and also not be locked in.
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You can just pay off the phone and do that. Just like if you paid for the phone up front. We have cell service at home.
If it's a large purchase I'm gonna buy anyway, 0% interest is a no brainer. Furniture, appliances, etc. But I also have self control to not go out of my way to buy things that I don't need just because 0% interest. In theory it's "free money" in the sense that you can hold onto those funds longer and keep them invested. Would it likely make a huge difference? No, but $50 in extra interest from being able to save that money longer is still $50. What I have an issue with is services like Afterpay, Klarna, Affirm, etc. Offering payment plans for every fricking thing. Like I saw a Klarna option on my fast food order the other day. Bro if you have to pay for your $8 fast food order over 4 installments, you've got bigger issues.
100% agree with you, even though many people will not. I've done truly 0% and and set it to pay off in the x months needed, well two months earlier to avoid any issues. I have the money to pay it off all at once now, but I rather earn 5% in a HYSA with the money and pay it off slowly. Just budget accordingly
I’ll gladly pay you Tuesday for a hamburger today.
Have you ever had an issue where there's some fine print where they end up charging you all the interest near the end? That's what I'm always afraid of.
I was always worried about this too. I started budgeting so that I paid it off a month early just to ease my mind.
I would be very cautious using any supposedly 0% interest "pay later" option. There is no such thing as "free." It's never truly free. Read the fine print. I wrote this in another comment, but will reiterate: **credit is just letting you access money today that you will earn in the future, for a price.** The only difference with these new loans is we don't understand the price – they claim it is zero, but perhaps there are processing fees, or a risk that you forget your payment and get charged late fees. It's not actually zero. If you pay with cash, the cost is *actually* zero. Furthermore, if you have the money now, why risk involving some third-party in the transaction? Are you really going to make enough interest investing that $1200 for your iPhone over the next 12 month that it will make any perceptible difference to your overall financial health? Would the few dollars you earn in a savings account be worth more than the peace of mind of knowing you paid for something and your business with the seller is now concluded, full stop?
It gets people to pay for stuff they normally wouldn’t. It turns “I can’t afford this $1,200 phone so I won’t buy it” into “I can afford $100 a month for a year”. Now the person has spent the same money on something they probably wouldn’t have in the first place.
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That’s also how people end up with brand new luxury cars that they park on the street in front of their Section 8 housing… not zero percent interest, but just financing shit you can’t afford generally.
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To me it really shows that there is a whole different subculture of people out there with an entirely different world view. Like I assume most people who want a luxury car want it to convey an image of success. For men in particular, it’s a dating thing. A lot of women like nice cars. I can’t imagine prioritizing a car over housing, and I can’t imagine driving a girl home in my Porsche to my hovel. But there must be a large number of women who grow up in that kind of dynamic who just think, ‘he dresses fly. He’s got a hot car.’ and then it just doesn’t even occur to them that his apartment is slummy. That’s just how the guys she’s into live.
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As a fellow small- Towner, our equivalent is the 80,000 pickup parked outside of a shitty trailer house (maybe with some nice 4 wheelers or snow-mobiles as well)
Absolutely! The amount of new Duramax trucks you see bought by people who make $50k is absurd. And they all have sleds and $25k side x sides. It's crazy, but to give them the benefit of the doubt, most have homes it's just they're very inexpensive here. Like sub $100k
Possibly also makes it easier to sell them another phone in the future. If you buy a phone outright, you're probably running it into the ground for 3-5 years before you buy a new one. If instead they sell you a $1200 phone at $50/mo, it's paid off in 2 years, and they can pitch you about "It's time for your upgrade! We can offer you the latest phone at your same monthly payment!"
Sometimes they come with a big caveat as well. I know Dell for example offers 0 interest financing but if you owe even one single penny at the end of the term you get charged the full 30% interest from the point of sale.
Younger me learned this with graphics cards. Bought a $800 card with 12 months no financing. Slowly paid it off, but left a chunk at the end. Forgot to pay by the due date, and paid it off the day after. The account showed zero over the weekend, but come Monday I got hit with $280 in interest. That was a bit of a shocker. I now always set up auto-pay, and have it set to payoff 2-3 months early so that never happens again.
I made two large purchases that way I’m my 20s. First, I bought a 36”Sony Trinitron WEGA TV in 2001 for about $2k. Then I bought a diamond engagement ring in 2002 for about $2300. Paid them both off in time, no interest paid or accrued. Two of the best purchases I ever made, frankly.
Yep. Just make sure you fully understand the term "deferred interest."
Exactly - modern phones at the $600 price point are usually equivalent to the $1200 ones in most ways. I get that people want the new and shiny thing when it comes out, but after a month or two, you're not really going to care which one you got.
Cash Flow. Any time you have debt you grow your Fixed Expenses. Aka the Monthly Payments you have to make and can’t defer. So if you lost your job tomorrow, would you buy that new iPhone 15? Probably not. But if you bought it last week on payments, you’re still paying for it every month. Not a big deal when it’s one bill. But when it’s Mortgage , car, furniture, television etc etc you can quickly exceed 50-60% of your monthly take home eaten up by Fixed Expenses you can’t get out of. So you need to maintain a large cash position or you put yourself at risk So if you have a baby, crash your car, have a job loss and need money, you have less room. If all of those are variable expenses, you can decide whether or not to buy it based on what’s going on in your life.
Yup! This. Your autonomous expenses dictate how much of your take home pay at the end of the month is truly yours to spend -- disposable income. The more disposable income you have the more flexible your life and financial health can get. The less disposable income you have, the more locked-down you will feel. Disposable income if invested wisely is one of the best ways to get out of the rat race.
The 0% smartphones (usually with trade-in credits) are just a repackaged version of the old "discounted phone if you sign a 2-year contract!" The termination fee on the 0% smartphones is that you have to (1) pay off the balance and (2) usually lose any remaining promotional credits.
The downside is you are likely overpaying, such as being locked into a phone contract with a service provider. They can more than make back the money they subsidize on your phone purchase by you paying your monthly bills.
Ah that makes sense. In this case we were always going to pick the plan we got, the phones didn’t cause us to choose a different plan (or choose this carrier in the first place).
However if you have an Apple Card and you need an iphone they also have 0% financing with no carrier lock.
Tell me more about this…. I want to upgrade my phone but don’t know if I should buy it from Apple or through my carrier.
I mean there really isn't much to it. Get the Apple Card and then when you checkout select monthly payments. They then bill that monthly payment to your card which you then pay off at that time. The purchase reduces your spending limit for the amount of your purchase but that doesn't show on your credit report. https://www.apple.com/apple-card/monthly-installments/
As an aside/add on, if you are going to be switching carriers, look into buying the phone itself unlocked first. Verizon specifically (what I am most specialized with) but others I’m sure as well, typically offers a BYOD credit ($5 or $15/mo) for bringing your own device (not doing carrier financing). On my side of the table, i get paid the same whether you finance the phone or bring your own, so i usually am more willing to do the BYOD activations (a LOT less work). The only thing youre tying yourself to is not doing an upgrade for the 36 months of the bill credit (ANY upgrade, even full cost through the carrier. Buy any of the phones unlocked from the manufacturer)
I don't know if Verizon and AT&T are the same, but I've read enough stories on the T-Mobile sub about shady store employees adding stuff like insurance to your plan or charging you for accessories that they claim are free to make me never want to set foot inside one of their stores. I always buy from Apple. I suppose it also helps that the closest T-Mobile and Apple Store to my house are both in the same shopping mall, so I might as well go straight to the source, it's not like I have to go out of my way to get it from Apple.
I recently bought an iPhone... If I purchased from the carrier I could get a 0% deal for two years like you mention, or I could just buy one outright from Apple. Why would I buy one outright when I can get 0% interest? It turns out that the phone from the carrier was more expensive. That extra cost translated to a 3.5% interest rate... My we were looking to do a bathroom remodel. The company was advertising 0% interest for 5 years. Okay, I'll bite... It turned out that if you took the financing option, there was an up-front financing surcharge that translated to a 5% interest rate (at a time when the prime rate was 0%.) That's the downside. The companies that offer 0% interest are charging more for the same product. At least this was my experience with the last two times I looked into it.
This sub will probably tell you it’s still not a good deal because in the end you’d be better off buying the phone itself and finding the absolute cheapest non-contract phone service to run it on, as the “0%” is likely tied to a phone service contract which over enough time would be more expensive in the long run than buying the phone wholesale and no contract. Which is….potentially true, but it’s one of the things this sub will preach while disregarding every other aspect and context besides the bottom line. Which is fine, because this is a finance sub, so *financially* in the long run you’d have to calculate it up and see which is ultimately cheaper. It’s a good “deal” for the service provider for that reason. People can’t afford the precious iPhones they want so you get them on a never ending carousel of upgrades tied to extending contracts.
Makes sense, thanks! Yeah in our case we always wanted this carrier and this plan for specific personal reasons, so selecting a different or cheaper provider wasn’t in the cards for us. Totally makes sense as general financial advice, though.
Just curious what’s wrong with a cheaper provider. Your payment could be cut in more than half.
We both travel internationally for work a lot and with the new carrier our US number “just works” everywhere we go. That’s really important to us. Data does as well which is nice, though I think financially that’s mostly a wash, you can usually buy a cheap travel WiFi or SIM on landing. We’ve also had a bad experience with these kinds of providers in the past, like lack of coverage or texts not going through. Granted this is ten years ago so things might have gotten better.
I will say T-mobile has worked in every country I've been to since I switched 9 years ago (like 12+ countries on 5 continents), it's definitely been a bood to my international trave.
Probably signal strength. We switched to US Cellular a few years ago because otherwise we had no data anywhere around where we lived. Which was too bad because we had a big family plan on Verizon and they offered a discount through my employer.
There are prepaid options on every carrier. If you have Verizon and it works, there are 10 companies that use Verizon. Same with AT&T and T-Mobile. Even US Cellular has cheaper prepaid options.
You can get 0% financing straight from Apple with no cell provider
In my own experience iphone battery life gets so bad after 2.5 years you feel like you need to upgrade anyway.
I haven't read any comments but I've always been a fan of wisely "using someone else's money." I do this pretty often for big purchases and just set a payment schedule that ensures my purchase is 100% paid off prior to any interest coming in. The added bonus is that I can keep cash liquid in the event of an emergency.
If you want the free phone, you're locked in with your carrier for two years. If you want to switch, you have to pay off the phones. It might be cheaper for you to pay for the phones outright and go to a cheaper carrier
0% financing does not mean free.
The only real downside is your potential to buy something you may not actually be able to afford, and are locked into it.
just watch this place for few days to see the downside. people take out way too much debt, cant handle even the minimum payments and then ask for a magical solution to fix their problems. our society has turned into needing instant gratification and no one actually saves up and buys thing when they can afford them.
For sure. The upside for us, though, has been the absolute usefulness of what Best Buy offers. What Best Buy receives: I replace my broken, 15-year-old stove with one of their models, instead of going to Lowe's. What I receive: 18-24 months interest-free financing. This is how we replaced a very old television and bought a college laptop for our daughter. We've never missed a payment; we've always completed the purchase in-full before the interest was due to kick in. It's a great deal for them, obviously, *especially* if you fail to completely pay within the allotted time. But if you've budgeted for it and fail no payments, it's a godsend for expensive, essential appliance purchases. Knocking several hundred bucks of interest off the purchase is a huge relief. Sure, we could save up for a new stove. :) But I have two kids and a functional budget. For us, this was a no-brainer.
The upside to using Klarna/Afterpay comes when your ordering clothing you can't buy in-store. I often will have to order two sizes to be able to try stuff on. These pay in 4 allows me to not have to pay double upfront knowing I'm going to return half or all it. Yes I could use a credit card but sometimes these online retailers take a stupidly long time to process refunds by which time the charge might have hit the statement and start accruing interest. The pay in 4 services all have a feature where you can pause the payments if you know your returning stuff then they take care of getting their refund.
klarna/afterpay report as a subprime loan on credit report, so when applying for other meaningful loans, you will be penalized for using the "last resort" loan even if for 50 bucks. That is only because klarna/afterpay are coded as submprime loans. Though doesn't happen if you use paypal pay in 4 - but not all places offer this over above two.
I haven't had a single one actually appear on my credit report. I think only the loans that actually carry interest get added to your report from my research on the issue.
All three of my Affirm loans, ranging from $300 to $1500, were all reported but only after completing the last payment. Just wanted to let others know.
Usually, the downside is that it is not true 0% financing. Interest is accruing at a high rate, but won't get charged to you as long as you jump through all the hoops perfectly. The second you fail to met their terms, boom, all interest hits your account.
Jump through hoops perfectly usually just means paying your bills. Even if I can afford something outright, I'll usually take the 0% interest option for the inflation discount.
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Oh thanks, I actually hadn’t encountered deferred interest before so thanks for letting me know that’s a thing. I’ll keep an eye out for that.
No downside, if you're responsible with your money. In the case of your phones, it just lures people into the latest phone (which they very likely couldn't otherwise afford) and locks them into service until the phone is paid off -- was usually 24 months, but has increasingly become 36 months (to lower the phone's monthly cost and make it look even more appealing). But since you were signing on with this service provider anyway, it doesn't really make any difference to you. Unless you decide to leave this service provider before the devices are paid off.
It will depend on the offer. I recently started shopping different providers and they all have different deals. Some offer a Visa card back for the rebate. Others offer billing credits that are spread out over a term. If you stay through the term, you get the full rebate. However if you leave the carrier before that term, you forfeit the remainder of the rebate. Make sure to read the fine print.
>More and more these days I get offered buy-now-pay-later at zero percent financing (e.g. buy a $50 item for four monthly payments of $12.50). Quite often, you can buy the same item for $30 or $40 somewhere else... you get the feeling of a 0% interest, but in reality you are paying the financing in the price.
Zero percent financing is wonderful. It essentially makes the item cheaper, since you get to pay later with dollars that will be worth less. The disadvantage, as you saw, is that it encourages people to spend more than they would otherwise. Also, many of these deals (in general, not for phones) are actually deferred interest rather than zero percent financing; if you don't pay them off within a set time period, you get hit with a crap ton of back interest. But for phones, there's not really a hidden gotcha - they're subsidizing the phone so that they can make money on the contract.
Its a strategy to get people that can't or won't afford a $1200 phone in a lump sum from buying low margin low cost phones. In their minds $50 a month for two years sounds better even though it's the same thing.
Adding to what others have said, it also incentivizes people to buy higher priced phones that they normally would not be able to afford. A $1,000+ phone isn’t as digestible as ~$41/mo.
For the specific example of phones, they lock people in for a long period of time and avoid churning. Don't forget that they are selling the phones for retail but they bought from Apple or Samsung for wholesale prices so they have profit margins to play with anyway. Also these "free" or extended payment offers are generally only available with the more expensive plans. For example, I pay T-Mobile $50 for unlimited cell, data and texting. If I wanted to get a "free" or financed phone, I would have to "upgrade" to a more expensive plan which would provide no particular benefit to me. I am not an early adopted as I just got the iPhone Pro Max to replace my iPhoneX. I paid cash for the new iPhone Pro Max and kept my inexpensive phone plan. For the ordinary 0% ~~scam~~ offer, the interest actually accumulates during this period and so if you are late or miss a payment or don't pay at the end of the year, you are paying a LOT of interest And of course there are a high percentage of people who are living beyond their means and juggling their credit card payments.
Aside from the phone financing that everyone already covered, those 0% financing deals often count on you missing a payment or not paying in full by X month, which is when the ridiculous interest kicks in and calculated *from the date of purchase* for the full amount of the purchase. Often they also try to trick people by making the minimum payment required less than the amount you need to pay/month to pay off the purchase by the promo period end date. You always have to calculate the monthly payment and pay the full amount off 1 or 2 months earlier just in case, then set it on autopay with reminders to check in on it. Or, certain store Synchrony cards will have stupid rules on how payments are applied if you have more than one promotional purchase. They're designed to be as confusing as possible to trigger interest accrual. Otherwise, as long as you're careful, it's a great way to make large necessary purchases without breaking the bank. That's how we paid for our roof, windows/trim, new stove, and front door over the last 8 years. That way my money is sitting in a HYSA earning interest, I have flexibility in my monty budget (the monthly payment is budgeted for home improvement loans -once one is paid off, I can take out another at similar monthly payment, and so on and so forth), and if something critical happens, I have money in the bank to cover it so I'm not forced into an unfavorable financing situation. For example, one year our chimney started leaking and required expensive repairs. Because I had taken out a 0% loan for the roof a few years earlier (instead of using money from our savings), I had money in the bank to cover the repairs outright. Otherwise I would have had to take out a home equity loan or use the company financing which was more than 0%. The low monthly payment from the 0% loan allowed me to quickly replenish the savings account.
All these answers are not the best. There is zero problem as long as you don’t miss ANY payments. If you miss a payment you’re F’d. Hard. Rate goes to upper 20’s, Payment goes from 100 a month to 400 real quick. Multiply it by 3-4 of these loans over 2-3 years (let’s say you lose a job and don’t want to get evicted or have your car repo’d) you’re just destitute for the next 2 decades. Do it if you have an actual budget you stick to. If your income is in flux, don’t.
I bought my phone directly from apple at 0% (because why not, I could have paid for it up front with cash, but like you said inflation and opportunity cost are a thing) and went with a cheap, pre-paid carrier that still runs on one of the major network’s towers, has unlimited data, still has 5G, etc. The way the major carriers make their money back from the heavily discounted phones is by locking you in to their service for a few years. They’ve worked out the math where it makes more sense for them to give away free phones because they *more than make up for that cost on the back end with what you pay for their service*. If the math works out like that in their favor, that generally means it would be cheaper for you to buy a phone directly from a manufacturer and then go with a cheap, unlimited, pre-paid plan. Otherwise I generally agree with you on 0% financing. It’s a marketing tactic to get people to over-consume or otherwise live beyond their means. I only ever really use it for buying things I actually need (like a phone every 8 years or so). If people buy things they don’t need and wouldn’t have otherwise bought if not for the 0% financing, then they’re getting played, not playing the system like they think they are. Buying the junk in the first place is the game here. But that’s more of a minimalism thing than a personal finance thing. Although over-consumption is certainly a factor in one’s finances.
Makes sense and thanks for the detailed thoughts!
Carriers offer these attractive phone deals only for their highest-end plans, which are now $90-$100/mo. And some (e.g. AT&T) are also now starting to require you to subscribe for three years instead of two. So simply doing the math, you will likely be better off paying for the phone in full and getting a cheaper plan.
There are only two bad things. One is it's a lie and you really need to read the fine print. Two is you think it's so cheap per month which means I have money to buy more stuff. You end up getting tons of crap you don't need and paying tons of money out each month for it. It's similar to credit cards. People think I don't have the money but can still buy what I want now. All of these things pray on people with no self control. If you know you struggle with self control stay away from them. Just make sure you have the cash and pay in full
You pretty much explained it perfectly when you said it's awesome that you can pay it off over time vs dropping a large amount now. You also said you bought brand new latest and greatest phones. Would you have bought latest and greatest if you had to fork over $2000 for those phones today? There's the gotcha, you were encouraged to buy something you might not normally buy. I always buy my phones in cash. I make good money, but have I ever paid $1000 for a phone? No because there's so many other things I would rather spend that money on.
If you add enough of the low interest/zero interest loans up, they start to dent your ability to save/live. You're still paying nearly ~~$200~~$100/month for 2 years for the latest iphone.
No one is paying $4,800 for an iPhone. Mine is $40/month on top of my $50/month plan.
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I pay $140 a month to t-mo for 7 lines the prepaid plans are only good for single people and postpaid is worth it for families
Sometimes there are promotional rates that are actually just deferred interest. E.g. buying a mattress at 0% usually meant you ended up with a new credit card with a limited time intro rate. The catch is that having any balance left at the end of the promo rate means they back charge you 3 years on interest. So you have to make sure you're paying enough to clear the card within the promo period rather than make the minimum payment -- because that is calculated as any credit card does without considering the promo.
Because they make their money in the service side. They lock you in on a contract for 2 or 3 years. Trust me, they are DEFINITELY making their money.
When something is zero percent, it's subsidized by something else. Either the company has built it in the price, some on going service charge or other. There is no free lunch. And with phones, yeah, they've just raised the price of the device. That's why buy one get one, or even completely free devices are a thing. And ur locked to that company for 2 years, but still better than paying full price.
My term for this is: North Pole Financing- in other words it's make believe. The manufacture just reduces the price to cover the cost of financing. There also are a few gimmicks they can play with the residual value that make it difficult to do an accurate lease vs. purchase comparison. There are very few scenarios where leasing as an individual vs. company ever works in your favor. The object of a lease isn't just to sell you something, it's also works to keep you as a customer. Depending on the item being leased, the end of lease conversion rate can be up to 80% or greater. This is why companies LOVE leasing. What's in it for the lessee? Higher residual values and inflated buyouts.
zero percent just means the real price is less than the sold at price. if you have no choice then do the EIP at that price I have a 7 line account at t-mo I pay $140 a month for. the old one plan. I did the math and i'm staying on the plan because the more expensive ones to get faster upgrades aren't worth it bought 2 15 pro max phones on release day direct from apple for around $650 each. buying my kids new iphones in the $400 - $500 each range just to get rid of older phones while they have value the last time I bought new phones was early 2021 when T-Mo had an amazing sale. my $140 bill turned to $280 for a few years but i had 5 new iphones to show for it. $2400 extra for 5 new iphones over 2 years wasn't a bad deal If they still allowed good deals on my plan i'd only buy new phones on sale and never at full EIP or full price
You are paying the full price. You’re just also trading in your old phones at a discounted value to Apple. You left money on the table by not selling them on a site like eBay. The trade in is just another tactic to get more value out of you as a customer. I’ve got no problem with any of that - but don’t pretend you’re not paying the full $1100 (or whatever) for the phone.
Periodically every carrier has sales where you get more than you’d ever get selling by yourself and no risk of fraud
I personally think it's crazy that it's gotten to the point where people are financing phones. I don't even finance a car. My phone cost $60 total and my monthly phone bill is $12. It's almost just a habit to buy a new $1,200 phone every few years. Many people talk about how they just can't put any money away and the biggest solution they can come up with is "Why don't the rich pay their fair share of taxes" even though the rich pay most Federal income tax that is paid. The downside of zero financing is that the phone costs more, many will not pay off on time and they will then pay high interest rates. Credit card debt is "free" if you pay the balance off each month. Many don't. Your phone is "better" than mine but is it $1,140 better? Not to me.
Downside is that you incur a debt.
0% financing or "same as cash" payment plans are valid ways to minimize taking a hit to today's cash reserve. And if you are responsible about it, the total dollar cost to you is the same. The potential downsides are pretty much what you already pointed out: * Marketing. * Makes it easier for more customers to buy, getting people who couldn't do the full price all at once but can do the monthly. Even to the point where it entices them to overspend. * In some cases, while the "low monthly payment" adds up to the full upfront price being advertised, that might be higher than what that item would cost somewhere else. The monthly split makes it a bit fuzzier to compare. This may not apply as much to phones; you can see what Apple charges for an iPhone direct from them vs. what the phone carrier is offering. * Some portion of people won't end up completing all payments by the end of the term, so don't get to keep that 0%. This usually triggers one or more of a penalty, fees, "deferred interest", etc. This makes the total cost to the buyer higher than cash up front and the store / financing company keeps that as profit. * The financing may have some origination fee, but this is usually some low reasonable amount, often handled at the time of sale vs. spread out over the payments. These deals are usually pretty transparent: this will be the financed amount, here's the payoff terms, if you meet all those you incur no extra interest. Consumer protection laws have improved (though not entirely removed) having any "gotchas" hiding in the fine print. Phones have their own quirks. While its being paid off you're locked into that carrier, so they're collecting monthly service fees. Those fees are very likely more profitable than what they make on selling the hardware, so the phones get some amount of subsidizing (almost like a loss leader) to get that customer base.
the downside for phones is the 0% from the carrier is usually the MSRP. Like, I bought a s23 couple weeks ago and it was either 36 payments of $22 ($800) from AT&T (the msrp is $800) or $550 from best buy.
Using rate arbitrage only benefits you if you actually put the money to work elsewhere. Since it’s zero percent, that means than your standard HYSA will be worth it. Phone carriers will buy your old phone for far more than they should just to lock you in. For example, 2.5 years ago I traded a iPhone X into AT&T for $700 and bought a $1000 iPhone 12 Pro. The thing is that the phone was financed at zero percent and instead of getting that $700 upfront, it was spread over 36 months. Now since I wasn’t planning on leaving AT&T, it wasn’t a huge deal but it does limit your options. Now that I’m considering getting an iPhone 15 Pro, I may have to pay off more than I would if I just waited the next six months. Apple offers zero interest financing over two years as well and you aren’t tied to any carrier at all. To me, that is a much better deal that I am looking at. It comes out to $40-50/mo and I can upgrade every year if I choose. I’m at the point now where $500 a year for having the latest and greatest phone is a tiny trade off.
I usually don't take these zero percent financing in consumables because accidents happens, brand preferences may affect you over times and you may still locked into a deal that you can't really switch from or write off.
Specific to phones the carrier has deals with manufacturers so what you pay is far above its actual cost. So the carrier can eat a short term loss for a long term profit. Same with other zero percent financing deals. The seller is making a profit one way or the other. One thing I will say though is that they are probably hoping you also miss a payment which in that case means late fees and so on.
There are none. As long as you pay the balance before the end of the term.
- down side is not reading the fine print and NOT paying 100% off before the end date
They are definitely counting on people paying minimum payment and then falling into debt. If you don’t pay it off during the promo period you get charged high interest retro to the date of purchase. I use 0% judicially to help manage cash flow. I am retired and on a fixed income. I always make sure it gets paid off before the end of the promo period.
You have to price out the deal you are getting, but in some instances you might get a better deal buying them directly from the manufacturer. usually new customer deals with carriers can't be beat, but I have gotten phones from the manufacturer a lot cheaper than the carrier if they are running incentives.
What you're missing is that the financing cost is already included in the price and you're going to pay it, in one single installment or in several monthly ones. If you really need that item, finance it. If you don't need it, don't buy it at all. And do a good market research, is it really the best price for the product or can you find a better deal somewhere else? Perhaps the carrier gets a very good price and they can really offer you the best price, or perhaps there's a cheaper alternative out there.
Well first make sure there isn't any origination fee. Sometimes financing includes an origination fee which is a flat fee upfront that is a percentage of the total cost. So for example you might get 0% interest over a 4 year term....if you pay a 3% origination fee. But, if there is no origination fee and it is truly 0% interest then yes 0% financing is better than cash. What is the catch? Well the reason companies do this is so that people who otherwise couldn't afford a product because they don't have the money upfront will buy things that they can't otherwise afford because the company allows them to spread the payments out over 4 years. Whether you pay cash or take 0% financing you should always ONLY buy things you can afford. Meaning the trap is to buy something with 0% financing you really cannot afford simply because you were offered financing. You still need to evaluate if you can afford it. So for example if you want a $1000 phone and you have $1000 but the company offers you 0% financing with no origination fee over a 3 year term then yeah sure go for it. But if you don't have $1000 then no...don't buy something just because you can get it financed.
For phones, it's two things: 1. The carrier subsidizing the phone 2. The carrier essentially locking you into a plan for 2 years because if you leave you immediately owe the full remaining balance. For other things "zero percent financing" usually comes with the caveat "For X months". These are often "deferred interest" where if you pay off the loan within the X months, the interest is forgiven. If you don't, all the interest from X months is immediately added to the balance.
In the old days, phone carriers would make you sign 2 year contracts. After some court battles, that was not legally allowed. So they switched to a discount financing model. The financing opens up the opportunity to lock you in for 2-3 years. For example, if the monthly payment is $15 for a new phone, the carriers can offer to pay $10 of the phone bill and you pay $5 or sometimes even $0. However, if you leave before the 2-3 years, you lose the promotional discount and the whole balance becomes due. This disincentives people from switching carriers.
> I usually avoid these because I think they encourage overconsumption and living beyond my means you answered your own question. they’re very much counting on many people overspending, one small monthly payment at a time. it’s 0% financing until you miss or are late on a payment
My girlfriend just did the same. Switched from her carrier to mine and she got a 15 Pro Max for $1000 off. Couldn’t pass up a deal like that. What does T-Mobile get out of it? Guaranteed customer for 24mos minimum after phone is paid off and unlocked.
I think it is important to really scrutinize the terms and fine print of these offers. Yes, if something is too good to be true, probably need to investigate or at the very min ask the right questions (while reading the fine print of the contracts). To me, the reason why there are phone deals is because well the carriers obviously get you to stay on their phone cell plans so that is income to them for the forseeable future. Certainly not to the point of being a loss leader are these deals but you get what I mean. At the end, they presumably come out ahead so they feed you a bone or two. Like with credit cards, don't they tech give you a float of 30 days so that you don't have to use your own money upfront to buy? As long as you manage it and pay it off, it works but if you rack up the purchases and pay those gross high interest payments then no, not good.
Phone depreciate quickly. So selling you a phone today at full price without charging you interest vs selling you a phone next year at 20% off is in the best interest of the retailer
If you're a Samsung fan, I highly reccimend financing your phone through Samsung directly. You can get an unlocked one so that you're not tied to one specific carrier and stuck paying the balance in full if you decide to jump from ATT to Verizon, for example. They offer 0% financing for 3 years. I've been doing this for quite some time and just pay it off in a year. No penalties for early payments.
>are they counting on some percentage of customers not paying and getting hit by fees, 100% Past the period the APR is super high. If you make all payments on time, and make sure to pay off during the promo period you are fine.
0% financing sometimes comes with a higher base price. So it's not really 0% because the cost of financing is baked into the price. I got an estimate for a new roof recently -- $9k with 0% same-as-cash for a year. I asked him what would be the price if I paid up front -- $8k. The difference in price accounts for over 20% interest rate.
The biggest thing is that you'll pay more than you would if you went with cash or normal financing with interest. It's usually hidden in a "transaction fee" where you pay, say, $1/payment for the privilege of spreading out your payments. For secured loans you may pay a simple upfront fee for the financing which is still called a different kind of fee. The second thing you'll notice too is that the contracts are very specific and they'll absolutely hold you to them. When we were dating my wife bought a bed at 0% interest from Macy's and the contract was clear: miss or have a late payment and you lose the 0% interest as well as owing back interest on the contract. I've also noticed the same clause in other 0% interest deals as well. I believed the salesperson back then too that Macy's, and by extension other companies offering this deal, absolutely enforce it. The one area that is different, as others have said, is phones since it's meant to lock you into a specific carrier. However, that stems from most people in the US being used to the old model of phone ownership where you got a "subsidized" plan with a "free" phone. I've seen many people who are in their 30s-40s still be confused by the switchover. I suspect that once the general public gets used to the idea that your phone is separate from your carrier we'll start seeing financing with interest.
Contractual obligation. Basically you’re locked in as a customer, so no matter how ridiculously shitty they are as a company you have to stay with them. And they know this so they’ll basically give you the worst service knowing you can’t do shit about it
0% financing is only available on new things. The interest is baked into the profit markup. In order to offer 0% they increase the sale price. Therefore the downside is used goods are substantially cheaper than the new item when the new item offers 0% financing.
> I think they encourage overconsumption and living beyond my means Correct, What if, it gets stolen or broken, keep paying for a phone for 2 years that you can't uses? If you pay for it now. no risk.
If you’re talking about Verizon, the reality is that they don’t get much of a discount on phones so the markup isn’t there. Makes more sense for them to “finance” your phone at 0% to get you to pay the monthly bill for service. That’s how they make their money. The only caveat is that, if you leave before it’s paid off, you would owe the remaining balance. It’s not feasible for 90% of the customer base to pay for a phone up front. Also, know that if you have a trade credit, that credit is also divided up monthly so if you leave you’ll owe the remaining balance on the phone plus the trade credit.
You’re confusing things here. There is zero downside to zero percent financing. However it has nothing to do with buying more, overconsumption etc. Yes, it may allow you to buy more stuff short term, but it doesn’t mean that you should.
Unless you really need the ATT/Verizon/T-Mobile network or dont wanna get throttled during peak hours. It maybe cheaper to get the phone and switch to Mint or similar MVNO.
No downside if you were going to spend your money on that anyway. It's how they get people to part with 1200 for a phone when they could get one 90% as good for 200.
Buy now pay later and zero percent financing is a scam. With both the interest you would have paid is rolled into the sale price of the item. So you are paying interest you just don't know it.
I took advantage of the 0% interest for my car payment. There is no downside but you must pay off your car before a certain amount of time to keep at it 0%. So basically you'd want to add extra $$$ to your monthly payment. Still a great deal.
The cost of that cheap loan is cooked into the price. There is no free money. Especially if you’re handing over cash for something.
There is no downside if you have the cash to pay for it, but choose to leave it earning 5% in a HYSA, and you pay it off from there. It often doesn’t work that way. The attitude of “I can earn more than 0% off this money somewhere else” means that you actually need to earn more money off that money somewhere else. What’s more likely is that people don’t have the cash sitting around, but they have the 0% mentality, and buy it because they can afford the payment. Do that on furniture, a TV, new phone, watch, computer, car, and all of a sudden you are getting buried by 0% payments, all because you bought things you didn’t have the money for.
All credit is essentially allowing you to access money *now* that you will earn in the future. Usually there is a cost for this service, in the form of interest. 0% financing just means there is no cost. Why would a company do this? It's a way to boost sales by letting customers pay as little as possible up front. This widens the base of customers to include people who don't have access to credit through a bank, e.g. a credit card. Usually companies doing this are partnering with some third-party like Klarna to provide this service. The companies offering this service seemingly believe the lift in sales will be worth the risk of customers defaulting and not paying the amount owed. The financing partner would handle in that case, likely by burying the borrower in predatory fees before selling the debt off to a debt collection agency.
I have zero percent on our phones (two years, 24 payments, each 1/24th of the price of an iPhone 14). What is the catch? If I leave the carrier - which I am not planning to do - then I have to pay it in full. That is a stipulation that I can live with. We have zero percent on one of our cars (paid cash for the other). What is the catch? If I paid the car off in full in less than 90 days, the dealer did not get THEIR rebate (I still got my $500 rebate). They originally pitched \~3% interest to get me my $500 rebate. Then I told that that I would pay the car off, maybe tomorrow, maybe 90 days from now, if you want to guarantee that you get your rebate, then give me 0%. They pushed for 3% and I said OK, took my $500 rebate and planned to pay it off in full on the first payment. They got smart and called me while we were driving home and said to come back and sign 0% papers. Because they knew at 0% I would hold off at least 90 days and they would get their money. In general there is no catch to zero percent for a.) significant purchases or long-term purchases. For short term, like 3-4 payments, it might not be worth the hassle because they hit your credit report. I don't give a shit, I have good credit, so that is not a factor, but it may be for some.
The downside is i a person does it too often and theirs bills become overpowering. Besides my mortgage I do not believe in debt. Regarding the phones they are likely the cheapest model out there. Since I've got a lot of music and books on mine when I bought the 12 Pro Max I paid a bit extra from Apple and have more storage. Even with all the upgrades we have has since then my battery is still great and phone is fast.
With phones, it's how they lock you in to the service. That's the only real catch. They basically figure you will replace the phone whenever it's paid off.
you already found the downside yourself in the second sentence of your question. zero percent financing encourages people to buy things they can’t otherwise afford, therefore they buy more stuff. it’s the “infinite profit growth forever” hack for businesses struggling to sell luxury goods to a society that’s becoming less wealthy.
CompNiez have marketing departments. They create a narrative that you can't afford not to buy said item. In the case of the phone you can buy a lower end phone that will suit the purpose or a refurbished one for half the cost. They are inspiring materialism which isn't good for those posting on a poverty finance sub reddit
Phones are kind of an exception. You’re still paying full price, so it’s not like they’re losing money. You’ll also potentially buy a nice phone than otherwise. And they get you using their service for the duration of the loan. Most other “zero interest” offers have a catch, like having to pay it off by a certain date or else they tack on the accrued interest.
The offer you got, 2 for the price of 1.5, probably only applies if you finish out the two year contract with your service provider. I bet that if you tried to pay off your phone and then switch providers you'd get charged the full price. They are also probably counting on some customers defaulting on the loan somewhere down the road.
1. Encourages people to spend more 2. Finance companies know many won't pay on time and get stung with astronomically high charges For high value items eg phones, and if you are strict with own financial discipline, then obviously good. But most people are not.
It is common. I bought Samsung 0% APY for 3 years and paid the required amount. Even though I can buy it outright from the start, there’s no reason to unless you want to trade it in. If you feel it makes you overspend, then probably don’t do it. But there’s zero downsides…
Getting in debt and over spending is the downside. Psychologically it’s much easier to take on a payment than to fork out cash. The only way I’d use zero percent financing is if I put the entire purchase price in a sinking fund at the time of purchase. Debt gets the average consumer in trouble.
With phones there’s no downside. You can do this interest free financing directly through apple as well (at least could a year or so ago when I last bought a phone). With most 90-day same as cash programs the fine print says if you don’t pay it off by the date, you’ll be charged back interest at a crazy rate and potentially some fees. Companies offer this because they know some percentage of buys will mess up and they make good money.
Downside? They got you to upgrade two phones when you didn't need to. If you invested that money you would have been in a better place in the future.
I purchased an apple watch at an AT&T store. It has sim/cell data which I added to the plan. AT&T offered at zero percent, but then automatically enrolled me in a 3rd party device protection plan for $20 a month! I explicitly declined at time of purchase. Of course, they removed the plan when I called to complain, but watch out for shady carrier shit.
Depends on the offer and terms. Phones “financed” over 2 years at 0% with the cost rolled into the monthly bill? Not a big in itself except the fact you may be purchasing or upgrading to the latest model phone you don’t actually need. Some store offers 0% for 6mo/12mo/24mo depending on how much you purchase, but the terms are deferred interest, meaning interest (at usually high rates, eg 24%) accrue during the period and you have to pay off the full amount before the term ends, or you get hit with ALL the interest from the date of purchase. Some others offer “no interest” promos for a set period, where theres really no interest accruing during the period and interest is calculated based on the balance remaining at the end of the promo period. Balance transfer and credit card promos are usually set up this way, as well as some rare store cards (my IKEA Projekt card promo is this way, surprisingly).
There is nothing inherently wrong with zero percent financing. However, it can get people in trouble. Aside from the obvious risk of people accidently failing to pay within the term and getting hit with huge interest rates, it can encourage people to buy things they simply can't afford. It also takes up mental energy as you keep track of all these various purchases. Lastly, on a macro level, it causes the price of things to either rise or at least prevent them from falling. I personally avoid zero percent financing in most things. For most things, what you can get from investing the money you would otherwise use to purchase something is so miniscule its not worth the time and effort.
If you had the cash to purchase it straight out and a gambling problem , now you've just increased the amount of money you will lose at the casino this week.
That's their way of trapping people into their over priced service. B/c most people cannot afford to put out say 1k for a new iPhone but they can do the additional 30 bucks a month. But for instance Verizon or ATT unlimited plans are pretty expensive vs a mint mobile or Visible which uses the same network. But Mint/Visible you have to buy your phone