Untangling the Jargon: Unlocked vs. No-Contract Cell Phones

So you’ve finally decided to break free from an over priced traditional phone contract, or you have dropped your phone one too many times and it’s time to get another.

Through your research you find that buying an unlocked or a no-contract cell phone is a great deal. But, what is an unlocked phone and how is it different from a carrier-locked no-contract handset?

Unlocked vs. No-Contract Cell Phones

Shopping for a new phone can seem intimidating because of the complicated jargon, but once you understand the differences between the terms you’ll find it’s not so complicated at all.

Let’s begin with some definitions.

Unlocked vs. No-Contract: No-Contract Phones

A no-contract cell phone is a phone you can purchase without locking yourself into a (new) two-year plan commitment with your cell phone service provider. At first glance, it may look like the handset will be more expensive than what you’re used to seeing aggressively advertised by wireless carriers; that’s because carriers subsidize the cost of the handset when you commit to a long-term contract and recoup the cost of discounted phones over the course of the plan commitment.

No-contract phones aren’t subsidized by the service provider, but can be a much better deal if you don’t want to be locked into an expensive wireless plan.

A no-contract phone is great if you aren’t eligible for an upgrade yet but need a new phone (whether you just want the latest and greatest or your phone broke and is beyond repair), or if you want to switch to a cheaper month-to-month plan that doesn’t come with a phone discount.

Unlike phones specifically labeled “unlocked”, no-contract phones are only compatible with a specific carrier.

Unlocked vs. No-Contract: Unlocked Phones

An unlocked phone is a phone that can be used with other GSM cell phone companies, such as AT&T or T-Mobile. With an unlocked phone, you simply swap out the SIM cards when you’re ready to change wireless providers.

Similar to no-contract phones, an unlocked phone can be used with any existing or new cell phone plan, but with the added flexibility of being compatible with other GSM carriers also. Unlocked phones make a lot of sense for frequent international travelers who can buy and swap in cheap local SIM cards when traveling abroad. (Please verify the specs of your unlocked phone to make sure it’s compatible with the wireless frequency of the country you’re visiting.)

Unlocked phones are more expensive than carrier-locked phones. Before you decide you want to go “unlocked”, consider whether a no-contract phone could suit your needs just as well.

How You Save Without a Contract

As mentioned earlier, when you purchase a phone with a contract, the handset will initially be deeply discounted (even “free”), but that’s because the carrier is giving you a discount in order to lock you into a plan contract. If you break the contract early, you will often be liable for an early termination fee, or ETF, which helps them recoup the cost of that subsidy.

For the frugally minded, this is why buying a no-contract or unlocked phone can make better financial sense in the long term.

Don’t believe there are cost savings to buying no-contract phones? Let’s break down the savings in dollars and cents:

Let’s say you want to buy the latest smartphone with an average cell phone plan for a single line from a big-name wireless provider. Most likely you’ll be offered a subsidized phone price of around $200 (this is not the real cost of the handset). In addition to this you’ll pay around $100 a month including unlimited calls, texting and some data. In two years you’ll have paid your wireless provider about $2600.

Now, let’s compare this to buying a phone at full price with a low cost pay-as-you-go carrier that costs $50 a month for calling, texting and Internet data. Even if your initial phone cost is as much as $600, you will have recouped the “extra” phone cost in under 12 months.

In fact, purchasing the phone outright is the cheapest option. You will pay the total cost of the phone, but save every month after that. You will only pay the monthly pay-as-you-go carrier about $50 a month. In two years you will have paid a total of $1800 (including the full cost of the phone).

This is $800 less over the course of two years when compared to buying an on-contract phone with a big-name wireless provider, and you save even more the longer you keep your phone.

Below you will find the breakdown of the estimated costs for the two scenarios discussed: one with an unlocked or no-contract phone with a pay-as-you-go carrier versus a carrier-subsidized phone with a two-year contract.

Handset Option Initial Phone Cost Monthly Service Payment Total Costs Over 2 Years
Unsubsidized (Purchased Outright)
Smartphone with
Pay-As-You-Go Carrier
$600 $50 $600 + ($50 x 24) = $1800
Subsidized Cell Phone
with 2-Year Contract
from a Major Carrier
$200 $100 $200 + ($100 x 24) = $2600

In order to switch to a pre-paid plan, which do you need: unlocked or no-contract?

Whether you need to get an unlocked phone or can get away with a no-contract carrier-specific phone depends on the pay-as-you-go/pre-paid plan carrier. Pay-as-you-go carriers such as Straight Talk, TracFone, and Net10 Wireless have agreements with all four major American carriers AT&T, T-Mobile, Verizon Wireless and Sprint, which allows you to use carrier-locked phones that are compatible with those carriers. With pay-as-you-go carriers that have GSM networks agreements, you may be able to bring an unlocked or no-contract phone as long as they allow it.

For other pay-as-you-go carriers with limited carrier agreements, you may have a more narrow selection of phones to choose from, especially if they are not on GSM networks. In the case of a BYOD policy for a carrier that does not use GSM, you can bring a no-contract phone.

Ready to make the switch?

Although you may pay a little more upfront, both unlocked and no-contract phones represent a big savings for your wallet in the long run. Thankfully, if you choose to purchase a no-contract cell phone you have several prepaid carriers to choose from including Boost Mobile, Tracfone, Cricket, and even the bigger carriers like AT&T, T-Mobile, Sprint, and Verizon Wireless.

So the next time your cell phone carrier tries to lure you into another contract, think about the savings you might gain from a cheaper month-to-month plan. A savvy shopper knows to buy unlocked or no-contract phones. For an extra cost savings, buy used or refurbished phones, but that’s a different blog post!

Author: Dianna

Dianna originally hails from North Carolina and is a proud alum of the University of North Carolina at Chapel Hill. Go Heels! Skilled at finding deals on everything from clothing to travel, she uses these super powers to help the BLINQ eCommerce team. When she isn't at BLINQ you can find her perfecting her salsa moves.

10 thoughts on “Untangling the Jargon: Unlocked vs. No-Contract Cell Phones

  1. AvatarAndy

    It’s not that surprising that a contract phone plan (with the subsidized phone) ends up being more expensive in the long run, but with how expensive phones are, I can’t really blame people for using them. Although I suppose the answer to that would be “just get a cheaper phone” but you know, keeping up with the Joneses and all that.

  2. AvatarJohn

    Finding a balance between the cost of a phone and the cost of phone service can be tricky sometimes. However, using a prepaid service or no-contract phone like these could help save some money for the same kind of access. Not only that, but by using one of these services, you avoid being locked into a 2-year contract with certain big carriers. Thanks for sharing!

    1. AvatarDianna Post author

      Hi John, yes using a prepaid carrier can really save you a lot in the long-run. Thanks for commenting!

  3. AvatarMarie

    Dianna, I use Ring+ for my cell phone service and don’t have any extra fees as long as I don’t go over my extremely generous allotment – the free plans are generally some combination of thousands of voice minutes, plus texts and data. They constantly have new promos and they vary, but recently offered the RingPlus Ageless Free Plan FLASH PROMO $0/month: 3200 minutes, 3200 texts, 3200 MB (full speed LTE),!

    I think there is a $15 activation fee when you sign up that stays on your account to be used toward any overages… (mine was $5 last year, but I’m pretty sure it is now $15) but I have never even dipped into mine. It is so wonderful to not have any monthly fees!

    You have to use a phone on the Sprint network (Sprint, Boost Mobile or Virgin Mobile) that does not have any contract that still needs to be fulfilled… so a new No Contract phone for this network should work fine. I bought my Moto G last year when pre-paids were still able to be activated, but now they have to strictly be No-Contract phones.

    The way the service is supported is, when you make a phone call, instead of hearing the ringing sound, you hear a very short ad. (Much of the time you just hear a short clip of music if there is no available ad, and you can choose what you prefer – I hear classical music instead of listening to the ringing sound.) It is very unobtrusive, and the person you are calling never hears anything different.

    It is a great way to save money. My phone cost me $150 from Best Buy (latest gen Moto G) and when I signed up the fee was $5 instead of $15 which is all still on my account. I haven’t used any of my reserve and have had free service since last year. Voice quality, data and texting is great in my area which has excellent Sprint network coverage.

  4. AvatarMarie

    I just wanted to add that there have been some changes with regard to which phones will work for Ring+, so if anyone is interested in a new phone, you really have to make sure it is completely unlocked and compatible. You can check before hand to make sure the particular phone can be activated on Ring+. It’s more limited now than when I signed up last year.

    I thought it was as simple as buying any new no contract phone that works on the the Sprint network… but after further investigation, it looks like that’s not quite the case. The phone has to be unlocked and work with the appropriate bands and you need a SIM card that is appropriate – something like the Nexus 5 or 6 is supposed to work, and also the Moto X Pure and iPhones.

    There’s some discussion about phones for Ring+ here – https://social.ringplus.net/discussion/2751/list-of-best-low-cost-non-subsidized-phones-that-work-with-ringplus-do-not-list-prepaid-phone-here/p1

    You definitely have to double check that a particular phone will work. It’s worth it though, for dependable, free service IMO.

    I hope this helps somebody. 🙂

  5. AvatarRobert Chung

    I only use cell phone about 6 months in America. For the rest of the year, I use the cell phone in Taiwan.
    I buy prepaid service for these 6 months. I am thinking to buy iphone6s plus.
    Should I buy one with no contract or one unlocked? Your advice shall be greatly appreciated.

  6. AvatarMisled by blogger

    You state that Tracfone requires you to buy one of their phones. This is FALSE! You can BYOP (bring your own phone). It requires the phone be unlocked. You shouldn’t pass on information that is misleading or incorrect to the public. Get your facts straight before you put something in writing.

    1. AvatarEmily

      Thanks for your comment! We really appreciate you bringing it to our attention that TracFone has changed their phone requirements since this article was originally published, and now allow consumers to BYOP. We will update the article accordingly!

  7. Avatardhini

    The solution is to use a flip cover, because in addition to protect the back and side of the smartphone, flip cover has a lid that protects the screen when hit by a blunt object / taper, scratches, and dirt. Besides the flip cover can inhibit vibration when the smartphone falls resulting corner of the screen will not break. The second solution is to install tempered glass on the smartphone. but the need to keep your smartphone to stay awake, let’s look at our site. thanks for sharing information this good

  8. Pingback: Smartphone Newbie’s Extensive Guide to TracFone Samsung Galaxy Core Prime S820 | Ray Woodcock's Latest

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