AT&T no contract? What you need to know about no-contract deals.
AT&T has joined T-Mobile and other companies offering a no-contract plan, but keep an eye on the fine print.
Contract-free cellphone plans were supposed to be easier to understand, but that's no longer the case. Washington state's attorney general recently blasted T-Mobile for its Simple Choice plan that turned out to be not so simple. T-Mobile was criticized for its new "no restrictions" plan, which, in fact, does have some restrictions. Oops!Skip to next paragraph
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It's time to pull out the calculator and take a look at the asterisks on those contract-free wireless plans to see if they really offer savings and headache-free convenience.
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1) What's the difference between contract and payment plans?
Signing a two-year contract with a wireless carrier means paying a minimum upfront fee for a cellphone, with the true cost of the handset — and then some — included in the monthly bills. For example, Verizon Wireless charges you $99 for a 16GB iPhone 4S but locks you into a two-year contract.
With no-contract cellphone packages, you pay the full cost of a phone upfront. Virgin Mobile, for example, charges $350 for the same iPhone. But you subscribe one month at a time and can ditch the service whenever you want.
T-Mobile's new no-contract plans offer a twist. You have the option of buying a phone outright or providing a down payment, such as $100 for an iPhone 5 (it doesn't sell earlier models) or $110 for a Samsung Galaxy S III, and paying an extra $20 a month for two years.
2) What happens if I leave T-Mobile before the phone is paid off?
You have to pay whatever you still owe on the phone, immediately. This "balloon payment" is what got T-Mobile in trouble for advertising "no restrictions."
3) How does paying upfront compare to paying an early termination fee (ETF) for a contract?
Break a two-year wireless contract with Sprint for a Samsung Galaxy S III, for example, and brace for an early termination fee of up to $350 and a possible ding to your credit score if you can't pay the full ETF immediately. Some carriers shrink the ETF over the life of the contract. Verizon reduces its ETF by $10 each month. Sprint starts to reduce its ETF by $20 a month but only beginning with the 17th month of service.
With no-contract plans, your penalty is the cost of the device. Buying the iPhone 4S from Virgin Mobile ($450) and saying "goodbye" costs you more than an early termination fee of $350 with Sprint for the same phone.
Parting with T-Mobile for an iPhone 5 will cost you a balloon payment of $530 after one month of service but $20 less each following month, so time is a factor.