Smartphone with or without a contract

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Does it make financial sense to get your new smartphone with a 24 month contract? That is something I never even thought about before coming to USA. Back home most people paid full price on the phone and got what ever plan they wanted althought it has become more popular to get subsidiced phones with 24 month contract. For me I never thought about getting a subsidiced phone until I came here. Back then there was no choise because I had to have an iPhone so it meant signing a 24 month contract with AT&T. Thankfully now there’s choises.

For comparison I’m going to compare few T-Mobile and AT&T plans since I’m most familiar with them. Some of the plans are not going to be equal they are just going to be cheapest vs cheapest type of comparison. The choice of iPhone model doesn’t affect the end result it’s just the up front cost. The difference will between total costs will be the same regardless of picking the cheapest iPhone 4 or the latest and most expensive iPhone 5. So I’ll just use the cheapest iPhone 4 model for comparison as if it was bought new from Apple Store with or without the contract. I’m going to ignore taxes and fees on the contract plans to make the comparison simpler.

Cheapest T-Mobile prepaid vs cheapest AT&T contract

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $30 per month
  • Unlimited data (up to 5GB in 4G speeds)
  • Unlimited text
  • 100 minutes of talk

AT&T contract plan:

  • Cost of iPhone 4 8GB $0
  • Cost $59.99 + fees and taxes
  • 300MB of data
  • No text messages
  • 450 minutes of talk

As you can see these are not quite equal plans. Total cost of T-Mobile prepaid in 24 month period is $1170 and that includes the phone. The AT&T contract cost is $1439.76. So without contract you’ll save almost $270 over 24 months or $11.24 per month. I think that’s a huge win for no contract.

T-Mobile unlimited everything vs AT&T unlimited talk and text w/ 5GB data

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $70 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

AT&T contract plan:

  • Cost of iPhone 4 8GB $0
  • Cost $139.99 + fees and taxes
  • 5GB 4G data
  • Unlimited text
  • Unlimited talk

AT&T doesn’t offer unlimited data so these plans match each other the closest. Total cost for T-Mobile prepaid is $2130. The AT&T contract cost is $3359.76. That’s a whopping $1229.76 difference so you your savings are even greater with the no contract T-Mobile. The savings per month comes out to $51.24.

T-Mobile unlimited prepaid vs T-Mobile classic unlimited 4G

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $70 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

T-Mobile classic contract plan:

  • Cost of iPhone 4 8GB $450
  • Cost $89.99 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

This is the fairest comparison because both plans have the same features and there’s no phone subsidicing involved. The prepaid total cost is $2130 and the contract cost is $2609.76. That’s still savings of $479.76 or $19.99 per month on the prepaid.

It’s clear that the no contract is way cheaper over time but it does have higher up front cost. If you are worried about T-Mobile compatiblity with iPhone don’t it’s gotten really good.