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?
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)
|$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!