With the two-year contract model phasing out, cell phone companies are enticing customers to stick around with early upgrade programs.
The basic idea: You get a phone for little or no money down and pay off the rest of the cost in monthly installments. Once you hit a certain repayment threshold, usually around 50% of the total cost of the phone, you’re eligible to upgrade. Turn in your old phone and walk out with the newest model, which you then start to pay off in the same way.
The downside is you’re stuck with something like an annually renewing lease, although AT&T and T-Mobile both give you the option to purchase your phone outright. They also make you responsible for any damage to your phone, requiring that your old phone be in good condition before you swap it for the upgrade.
The upside is an easy way to upgrade your phone every year or two. Instead of buying a new phone and selling the old one, you just swap it out. That ease, however, comes with several caveats.
T-Mobile’s Jump program charges a monthly fee to participate but includes phone insurance and security features. You’ve got to weigh that against the value of an annual upgrade. AT&T’s Next has no monthly fee, but it doesn’t include insurance.
With AT&T Next, you have two options:
- Pay for your phone in 30 monthly installments.
- Trade in your phone and upgrade after you pay off 80% of the retail price, which is typically after 24 monthly installments.
AT&T NEXT EVERY YEAR
- Pay for your phone in 24 monthly installments.
- Trade in your phone and upgrade after you pay off 50% of the retail price, which is typically after 12 months.
If you have good credit, you don’t have to make a down payment. If you don’t have good credit, you might have to pay up to 30% upfront. A down payment would lower your monthly cost in any case. You’ll pay tax on the phone upfront as well. After paying two monthly installments, you can upgrade at any time by paying a lump sum up to the required amount, either 80% or 50% of the retail price.
With no down payment, customers buying a 32 gigabyte iPhone 7 at $649.99 on the standard 30-month plan would pay installments of $21.67. Customers on the Every Year plan would pay 24 monthly installments of $27.09.
In either case, the combined installments add up to only pennies more than the retail price. You won’t pay anything extra to upgrade every one or two years, but you’ll be forever paying off your phone if you keep upgrading.
If a $27 monthly charge is worth having the newest phone every year or two, there’s no real downside to AT&T Next.
However, if you break your phone, you must have it repaired to “good physical and fully functional condition” before getting the upgrade. Purchasing AT&T’s $8 per month insurance program keeps you off the hook for repair costs.
» MORE: Cell phone insurance options
In that case, you have a more complex calculation to make about the value of Next. We’ll illustrate when we run into the same problem on T-Mobile Jump.
T-Mobile Jump is similar to AT&T Next Every Year. You pay off your phone in 24 monthly installments with the option to upgrade whenever you want. Whenever you upgrade, T-Mobile will pay up to 50% of the retail price of your phone. So if you want to upgrade before you’ve paid off 50%, usually around 12 months, you’re stuck with covering whatever T-Mobile doesn’t.
- Pay for your phone in 24 monthly installments.
- Trade in your phone whenever you want, and T-Mobile will pay 50% of the retail price. You’re responsible for paying whatever T-Mobile doesn’t.
- The program costs an extra $9 to $12 per month, depending on your phone.
The catch with Jump is the extra $9 to $12 per month that T-Mobile charges you to participate in the program. High-end phones like the iPhone 7 and Galaxy S7 usually hit the upper end of the scale at $12 per month. Jump’s monthly fee includes phone insurance and security features, which T-Mobile also sells separately, for $12 per month.
The insurance is nice, as again you’re responsible for turning in a fully functional, undamaged phone when you want to upgrade with Jump. But that also makes the value calculation a little more complicated.
We have a more detailed comparison of an iPhone 6S purchased at retail price and one purchased on Jump in our in-depth Jump review, but we’ll sum it up here. For an iPhone 6S, Jump is pretty much a wash. By our calculation, you end up paying $11.82 less over two years on Jump than buying an iPhone 6S outright and selling after a year.
One thing to note: High-end handsets from Samsung and Apple retain their value better than most other smartphones, meaning you don’t lose as much money when you sell it after a year. If you’re dealing with a different phone, one that will depreciate more before you sell it, Jump starts to look like a better deal. If you can get a great price for your used phone, Jump looks less attractive.
» MORE: How to sell your old phone
Which should you choose?
If you want the newest smartphone every year and you’re happy with AT&T, Next is a no-brainer. You might even consider getting the $8 per month insurance option.
With Jump, it’s possible — but not guaranteed — to save a little bit of money and get cell phone insurance and hassle-free upgrades. If those things are worth the risk that you might pay a bit more than you would otherwise, take the leap.
Stephen Layton is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.