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Should You Lease or Buy Your Next Smartphone?

You've got more options than ever for buying a new smartphone, including one option in which you don't really buy your phone at all.

In addition to the traditional methods of buying a lower-cost, subsidized smartphone in exchange for signing a two-year contract or paying off the full price of your device outright in the form of monthly installments, you can also lease your device from most carriers. Simply sign a lease deal, and in exchange for a low monthly payment, you get a phone you can use, plus the option to upgrade at any time. Just keep paying the flat monthly fee, and you can turn in your old phone for a new one every 12 months. One carrier even lets you swap phones up to three times per year.

Both Sprint and T-Mobile offer leasing options alongside their pay-to-own equipment installment plans (EIP). And while neither AT&T nor Verizon offers leasing options — yet — phone makers are getting into the leasing business, too. Apple became the first hardware vendor to offer leasing of its phones last fall, and ZTE followed suit with a program of its own. Samsung is reportedly mulling over a leasing program for its smartphones.

Is leasing your next phone a smart decision? It potentially is, if you plan on upgrading a lot. But leasing your phone adds a few risks you need to be aware of before you make a decision.

Quick Tips

If you're in a hurry, here are the most important things to consider when deciding whether to lease a smartphone. We explore these in greater detail below.

  • You own your phone when you buy it under an equipment installment plan (EIP). At the end of a lease agreement, however, you have to return the phone, buy out the remaining balance or upgrade to a new model.
  • Consider leasing if you like to have a brand new phone every year.
  • Most EIPs offer early upgrade options, too, though you'll have to pay off your current device first.
  • Monthly payments are slightly lower if you lease your phone rather than buying it on an installment plan.
  • If you're happy using the same phone for 18 months or longer, buy it through an EIP (or buy it outright if you don't mind the larger upfront payment).

MORE: The Best Cellphone Plans for Families and Individuals

Leasing vs. Equipment Installment Plans: How they're different

You might think leasing and EIPs look similar, as both are built around monthly payments for a fixed term. There's one major difference, though: With an EIP, at the end of two years, you own your phone. Once the device is paid off, you can continue to use it with no additional monthly hardware costs, or you can sell your phone to finance a new model. With a lease, the monthly hardware costs are continual.

A 32GB Samsung Galaxy Note 5 from Sprint costs $25 a month if you lease, but buying via an EIP raises the payment to $30.80

Those monthly payments tend to be lower for a lease agreement than with an EIP, just as they are usually lower over the short term when you rent instead of buy. In the case of phones, with an EIP, you pay a little more each month, because you're paying off the phone. For example, a 32GB Samsung Galaxy Note 5 from Sprint costs $25 a month if you lease it, but buying the phone via an EIP raises the monthly payment to $30.80. Trading in your current phone for a leased device can mean even lower monthly payments at some carriers, and the newer the phone, the lower the monthly payment. 

Spread that savings out over two years, and you can walk away with a nice chunk of change after having leased your device. Take Sprint's leasing program for an iPhone 6s. You'd pay $26.39 a month for 18 months and be eligible to upgrade to a new phone after a year. In contrast, with Sprint's Easy Pay EIP, you'd pay $27.09 per month for that same phone, plus a $10 monthly charge if you want to upgrade early. (Sprint also charges $10 a month on 24-month leasing agreements if you want to upgrade early.) That means after a year, when you’re eligible to upgrade, you'd have paid $445.08 for your iPhone 6s through Easy Pay, compared to $316.68 if you'd leased the phone.

And that's the primary appeal to leasing: Just pay a regular monthly fee in perpetuity, and you always get to show off the most current superphone. Most leasing deals let you update before the two-year lease is up. T-Mobile lets you update up to three times a year, for instance. Early update opportunities and costs vary wildly with EIPs, but most require you to wait at least six months or to pay off at least half the cost of your old phone before you can get a new one.

Leasing a phone is pretty easy to understand, especially in contrast to the upgrade conditions you have to wade through with an EIP. So it's easy to see how leasing has become so popular. In 2015, more than half of Sprint's customers who financed their devices –– in other words, customers who didn't pay the full price of a phone up front or sign on for a two-year contract — were four times more likely to lease their devices than buy them through an EIP. And these lease numbers have risen consistently since Sprint originated the lease idea with its iPhone for Life program in September 2014.

"Leasing… [i]s a bit more transparent, in that the consumer knows how much he or she owes," said Ramon Llamas, research manager and market research firm IDC. "And it's not so much a shell game [as are] subsidized smartphones.”

But Llamas also has a warning: "Like all leases, take a good look at the fine print to understand the conditions and limitations that apply."

Leasing Is Kind of Like a Contract, But for Hardware

That warning is sound advice. Despite the seeming simplicity and the outward appearance of a lower cost, most leasing plans involve a dizzying number of conditions and options, including the requirement to trade an "eligible" device to get the best deal.

"Nothing has changed — only the names have changed. You've just exchanged iron shackles for gold shackles." – Roger Entner, Recon Analytics

A 32GB Samsung Galaxy Note 5 from Sprint costs $25 a month if you lease it, but buying the phone via an EIP raises the monthly payment to $30.80. Credit: Jeremy Lips / Tom's GuideA 32GB Samsung Galaxy Note 5 from Sprint costs $25 a month if you lease it, but buying the phone via an EIP raises the monthly payment to $30.80. Credit: Jeremy Lips / Tom's GuideMore importantly, you should understand the commitment leasing entails. If you want to preserve that ability to regularly upgrade to new phones, you've got to stick with your current carrier. As a result, you could actually end up spending more money over time by leasing than by buying through an EIP.

"Instead of a service contract, now you have a handset contract," said Roger Entner, an analyst at Recon Analytics. "You're paying for [your phone] one way or another. Nothing has changed — only the names. You've just exchanged iron shackles for gold shackles."

MORE: Cellphone Insurance: The Best and Worst Plans

That's one of the reasons carriers have embraced leasing: Consumers seem to be buying fewer phones. Before EIPs became popular in 2015, people bought new phones on average every 21.4 months, Entner calculated. With EIPs now dominating the phone-financing field, people are buying a new phone only once every 27 months.

If you're in a lease, phone sellers figure you'll buy a phone more often and will be less likely to switch carriers or brands. "Carriers are in a never-ending quest to (a) keep their subscribers and (b) steal subscribers from everyone else," IDC's Llamas said. "Leasing plans like these are a way to do just that."

That's good for carriers and phone makers, but it may not be in the best interests of customers' wallets. Monthly lease payments that are lower than EIPs make it appear you are saving money. But this is a short-term illusion. 

What Happens When Your Agreement Ends

Remember: If you hang on to your phone after the two years it takes to pay it off under an EIP or an old-fashioned subsidy, the device is paid off. You own the phone completely, and you're essentially using a free device with no monthly hardware payment. You'll still need to pay for your monthly data plan, plus any access fees that a carrier charges per line.

When you decide you want a new phone, you can sell your old one through outfits such as Gazelle, NextWorth or uSell to help finance the new one. With a lease, though, you just continue to pay month after month, year after year.

What's more, comparing one leasing deal to another is not as clear-cut as you might think, since leasing periods run for odd lengths. Apple's iPhone Upgrade Program has a lease period of 24 months (you can get a new phone after 12 payments), while Sprint's iPhone Forever agreement runs 18 months (you can upgrade after 12 payments) and leasing an Android device from Sprint requires a 24-month agreement. T-Mobile's Jump On Demand (which lets you upgrade your phone three times a year) runs for 18 months, while ZTE's SmartPay lease program has 6-, 9-, 18- and 24-month iterations.

MORE: A Guide to No Contract and Prepaid Phone Plans

Comparing pricing among rival lease programs also proves challenging. T-Mobile offers the lowest monthly leasing fee, but that requires a trade-in of an eligible device. Apple's iPhone Upgrade Program is the most expensive, with a 16GB iPhone 6s leasing for $32.41 a month, but Apple includes two years of AppleCare+ protection for your device.

Once your lease expires, you face a few choices. With Sprint, you can upgrade to a new device, buy your existing phone at the price listed on your lease agreement or continue with a month-to-month lease. With T-Mobile, you can pay off the residual purchase amount to keep your phone, or trade in your phone for a newly leased model.  

In other words, leasing isn't as easy or simple as it sounds once you drill down. We asked both Sprint and T-Mobile for copies of their lease agreements to check for any other caveats, but neither carrier provided one.

Bottom Line

Leasing's lower monthly payments may look attractive. And for people who really want a new phone as frequently as possible, the ability to upgrade outweighs having to tie yourself to a carrier. But if you plan on hanging on to your phone for two years, or longer, buying that phone through an EIP is the wiser financial call.

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  • Splitit
    Raises an even broader question of whether a consumer would prefer to pay for an expensive purchase through installment payments versus all up front. Wonder what people would choose.
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