Why Leasing A Smartphone is a Dumb Move

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Does leasing a smartphone sound like a smart move? Here is how you lose out when big cell phone carriers get you to pay big money to lease a smartphone.

I’ve written in the past about how we used to enslave tether ourselves to Verizon each month. At nearly $170 per month in payments we were hemorrhaging cash we could’ve put to far better use.

We were like countless others who thought getting the latest iPhone (for my wife at least. I’m an Android guy) for just $199.99 was a great deal. The phone itself sells for something like $600 or $700 so that’s got to be a deal – right? In one of the many hand palm moments of my life I failed to look at the fact we were really just agreeing to finance our phones over the course of two years.

Many of the big players in the space are killing two-year contracts. That’s great to see…on one hand. On the other hand, it’s not because they are still accomplishing the same thing in a different way – through leasing. Leasing a smartphone has replaced the two-year contract in some instances and in nearly every circumstance that’s going to continue to cost you in the long run.

Why It’s A Dumb Move


Verizon, AT&T, Apple – you name it, they know what we want. They know we love technology and we want new technology yesterday. Smartphones are no different. I like me a good smartphone. Who doesn’t? A Consumer Intelligence Research Partners survey revealed that 94 million iPhones were in use in the U.S. as of March 2015, so I know I’m not alone.

I love that I can be virtually anywhere and do pretty much anything I want. To say a smartphone is a phone is a bit of an oxymoron really. Think I’m wrong? Ask yourself how much time you spend talking on said smartphone. If you’re like me, it’s very little. Rather, it’s a mini-computer in the palm of your hands. I don’t know how I’d live without one, especially with our business and the sites I run.

Anyway, the big boys count on us not doing simple math when we go to make purchasing decisions. When we give up the simple math, we guarantee ourselves being on the losing end. It’s just that simple.

That being said, let’s take a look at what leasing a smartphone from Verizon will really cost you in the long run. Let’s say you’re an iPhone fan and want the latest and greatest model. Below are the costs for Verizon’s mid-level plan:

  • iPhone – $649.99, but you lease it for 24 months. This comes to $27.08 per month.
  • 3GB data with unlimited talk and text – $45 per month

Right now you’re at $72.08 per month – before tax. If you live in a high tax state like Nebraska (our cell taxes are nearly 20% per month) you’ll be paying $86.50 per month.

It doesn’t stop there. What happens if you dent or lose your phone? You’re on the hook (not Verizon) to cover that cost. So, you decide you’d rather not carry that risk and want the insurance coverage. That adds another $11 to the equation, bringing you to $97.50 per month. Over the course of two years, that comes out to $2,340.

The traditional carriers also promote the “flexibility” of these plans. So, if a new iPhone is released a year after you get your phone you have the “flexibility” to upgrade to that new phone. However, you must pay off the original phone or trade it in (assuming it’s in good working order) and start another cycle of monthly payments. That doesn’t sound like flexibility to me; it sounds like a never-ending treadmill of payments…for a phone! It truly is the payment mentality at it’s finest.

There Are Other Options


There is one main reason behind the moves by the major carriers. It’s the no-contract movement started by the likes of Republic Wireless, Straight Talk and others. They have brought true flexibility, which is better for consumers.

How does a plan at Republic Wireless compare to the $2,340 at Verizon above? Quite well in my opinion. Let’s say you want the top of the line phone Republic Wireless offers – the Moto X, second generation. That runs $249 currently.

The highest plan Republic Wireless offers is 3GB, which runs $55 per month. Over the course of two years that would amount to $1,569 or a savings of $771.

That’s good, but you can do far better. If you’re on WiFi most of the time, like we are then you can get their base plan at $15 per month. They also pay you back for data you don’t use each month, which only sweetens the deal. In fact, the Republic Wireless site says an average bill for a user is just under $14 per month!

That’s not to say you have to choose Republic Wireless to save money by any means. There are many cheap cell phone plans to choose from and many of them around $30 per month. The plan we have at Cricket, for example, is $35 per month. That saves us $100 per month over what we were paying at Verizon.

True Flexibility


The device payment plans the big carriers offer are misleading. They don’t provide flexibility. In reality, they shackle you to them in a slightly longer chain. The solution to that problem is buying your own unlocked phone to break that chain.

Admittedly, this can be expensive especially when you’re used to financing your phones. Don’t let the sticker price scare you. You will still save good money in the long-run by going this route vs. leasing a smartphone. You can buy unlocked cell phones at Amazon, Ebay and many other places. This gives you the control, not the carrier, to come and go when you want and not have to worry about making a monthly payment for a smartphone, which is true flexibility.


How much do you pay for your monthly cell bill? Why do you think so many of us fail to do simple math when thinking through things like a cell phone? Is having new technology all the time worth the added expense?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Holly@ClubThrifty says:

    Yeah, I don’t get leasing a smartphone at all. If you have to lease it, that should tell you it’s too expensive!

  • Nicole says:

    I’m not so sure I agree with that last paragraph. When I was comparing plans in 2014 I noticed that even if I purchased my phone outright, the major carriers still wanted to charge me a monthly line fee ranging from $15-$40 on top of the plan fee. It didn’t make any sense. I feel like they will do anything to get that extra money out of you no matter what you do. Perhaps it has changed since then. I sure hope so because I’m ready to find a cheaper alternative.

    • John Schmoll says:

      That’s just the thing Nicole – I’m not talking about staying with a major carrier. I’m talking about going with a no-contract alternative that’s not with any of the 4 major carriers. Most of the alternatives are $30-40 per month. You can bring a phone to most of them and not get hit with a nasty fee. They can either be a new phone or a refurbished one – just so long as it works with their specific network.

  • Emily @ JohnJaneDoe says:

    I really don’t understand needing to have the newest and shiniest tech. Usually something a bit older will do the same job for a fraction of the cost.

    We’ve been with Verizon, but are getting ready to switch to Cricket. I wish we could just keep our old phones, but we’re going with very moderately priced Androids that will be on par with the two year old models we bought last year.

    • John Schmoll says:

      Exactly Emily! 🙂

      Good move – that’s who we moved to. You should check into if your current phones will work on their network. Both my wife’s & my old phones worked on the Cricket network so we just needed to change out the SIM cards and we were good to go.

      • Emily @ JohnJaneDoe says:

        No such luck, unfortunately. We checked the list.

        • John Schmoll says:

          Ah, good to hear you checked but sorry you can’t take your old phones over. However, at least you’ll breakeven in a few months after reaping the savings difference each month. 🙂

  • Natalie @ Financegirl says:

    I didn’t even know this was a thing! How silly.

  • Shannon @ Financially Blonde says:

    We have been with Verizon long enough that we have negotiated our monthly phone bill to about the price of Republic per user. I have frequently thought about switching but I always get concerned with the unknown transfer costs like lost connectivity and unplanned downtime. I live in an area that has poor cell coverage as it is and I would be afraid of losing anymore because of the impact it could have on my business.

    • John Schmoll says:

      Nice work Shannon! You bring up a good point and a valid concern. I was nervous about moving away from Verizon because we have some pretty spotty areas here in Omaha. Thankfully Cricket is on AT&T so it hasn’t been much of an issue. That’s what kept us back from RW actually – we have several friends in town who don’t get good reception on RW – otherwise we’d go with them.

  • Miles says:

    This is has totally become a behavioral issue for many consumers and the market keeps us well trained. Cars, phones, clothing all the same message. You need the newest thing at all cost to keep up. Practicality and intrinsic value has taken a back seat to the allure of having the glam and glitz. If a kid has a $500. Phone what are they being final illy trained for? Far, far too much money is wasted in this area of our personal economics. Between handsets, network access, media subscriptions and all the related accessories it’s amazing what the annual coats come to. In the end, not one tangible thing of value. Crazy! As always… Great post.

    • John Schmoll says:

      Could not agree more Miles. So little consideration is given to the cost and people wonder why they don’t have extra money left over. I’d much rather have practicality and financial peace of mind as opposed to the opposite. The bells and whistles just aren’t worth it in the long run.

  • Laurie @thefrugalfarmer says:

    We’ve been doing no-contract for many years, but switched to Republic Wireless in May when they gave us a super deal on smartphones. We now pay $12 a month (including taxes) for our smartphones, and are absolutely loving the no-contract service.

  • Tara says:

    We leased an iPhone, but only because T-Mobile offered a deal where we get money off our bill each month ($7) to reduce the lease cost because we pre-ordered my husband’s phone. I think T-Mobile is actually losing money on the lease since he’s only paying $19 a month for the lease which includes full insurance and warranty extension. I wouldn’t lease otherwise, but when a phone company is essentially giving away phones and it’s the phone you were waiting for, we go for it. (I’m still with my old phone, fwiw).

    • John Schmoll says:

      Completely understood Tara. It’ll be interesting to see how the leasing model shakes out in the long run if companies do give out phones.

  • Hannah says:

    My fancy phone is provided by work, but my husband has been really pleased with his Moto G and republic service. We spent $450 on the phone (bought it and dropped it the same day), but we’re saving $35 a month over Virgin Mobile

    • John Schmoll says:

      I’ve heard very good things about RW. We’d be with them ourselves if they had better reception here in Omaha.

      • Charlie says:

        John – I’m in Omaha, and I get AWESOME coverage with RepublicWireless! The only place I don’t have coverage is Northwest Iowa when I go back to the farm. I’ve been using RW now for 2 years in Omaha, and am extremely pleased. You should check the coverage map to make sure what your saying is correct.

        • John Schmoll says:

          Hey Charlie! You’re in Bellevue I believe – correct? We’ve had several friends who live within a 5-6 mile radius of us – we’re sort of north in the city and they’ve all said they’ve had very spotty service. That’s what has held us back. That being said, glad to hear it’s working for y’all – it’s definitely a nice savings.

  • DC @ Young Adult Money says:

    Hmm I haven’t considered buying an unlocked phone on Amazon, but if it’s significantly cheaper than buying new I would totally consider it. I think phones are still a difficult product for consumers. It’s almost like computers were a while back when it dang-near became obsolete after 3 years. I think as technology slows for smartphones people will be using their phones for longer and longer. At least that’s my hope with my LG L3. I bought a phone from T-Mobile but I hadn’t heard of a leasing option. Sprint, AT&T, and Verizon must offer those plans?

    • John Schmoll says:

      Yea, there are a lot of options out there to buy an unlocked phone and save loads in the long run. Yea, most, if not all, of the major carriers are starting to roll out some sort of leasing model.

  • Tanya @ A Mindful Migration says:

    I’m in the market for a new cell phone so I’ve been doing a ton of research. And you’re right – every major carrier really pushes leasing phones, even more so than the 2 year contracts, so you know that means they are a money-maker for them. People are so used to “free phones” that the idea of paying $600 in one swoop seems outrageous. I will fully admit that was my initial thought, but when you do the math, like you did, you see the truth. I’m leaning towards Wireless Republic because I don’t use much data and mainly use it in my home where I connect by wi-fi.

    • John Schmoll says:

      Yep, they’re really pushing the leasing model now. Like I said, they promote it as flexibility when it’s really not. You should check out someone like RW, you can save a boatload of money each month.

  • Ramona @ Personal Finance Today says:

    For years I was made fun by other bloggers in my country for not owning a smartphone. I was doing very well (blogging and web design business) and everyone expected me to have the latest smartphone.

    Well, I do pay for my laptop (since it’s the one earning my ‘bread’). I don’t purchase the most expensive ones, but they do cost me about 1000 bucks (17″ screen and some decent specs).

    My phone though needs to ring. That’s all. I spend most of my time at home, so I am already connected. If I do go outside, I want to log off entirely.

    Last year, when switching carriers, I had to purchase a smartphone (the old ‘SIM card’ didn’t work in their network). So I chose a 100 bucks LG that’s doing the job. And I do have some apps on it, email etc (even if I don’t really care for them too much).

    We pay 25 bucks/month for everything (mobile phone plans, landline, TV and internet).

    • John Schmoll says:

      Sounds like you have a good deal, overall, Ramona. We’re very similar, we’re home all the time so we use Wi-Fi 90%+ of the time. When you look at it from that standpoint you need very little.

  • Debt Hater says:

    I have been using Republic Wireless for almost 2 years (next month will make it official). I pay $25 a month plus taxes and fees. I’m hoping that I’ll be able to get 3 years out of my Moto X, because the longer you keep a single phone the more your savings will be!

    If you are paying monthly for your phone, you erase those savings completely.

  • Shannon @ The Heavy Purse says:

    Both Chris and I have our phones through work so we just follow their protocol. But I definitely see more people leasing, which is crazy. But they do a great job of selling of it. Most people don’t do the math and they know it too. And we also have a culture that loves payment plans too. The problem, especially with smartphones, is they will likely never complete a payment plan before they upgrade again and start all over.

    • John Schmoll says:

      That’s great you & Chris get your phones through work! You’re exactly right though Shannon, they do a great job of selling – we’re putty in their hands if we give up the math.

  • Jason B says:

    That’s not smart at all to lease a phone. I purchased my latest droid for $54 at Best Buy when it was listed for $100 at Verizon. It does everything I need a phone to do. Also, my bill is only $45 each month. You can’t beat that.

  • Kim says:

    Every time I read a post like this it makes me almost cry. So far, none of the no contract options have worked in our area, but I hold out hope that someday we will have service. At least property taxes are cheap!

    • John Schmoll says:

      I’m sorry Kim. 🙂 It all shakes out though – Nebraska has some of the highest property taxes so we pay for it somehow.

  • Lauren B says:

    Unfortunately most people don’t look at it this way, instead like you said they get really excited about the low $199 for a brand new iPhone deal. I outright bought an unlocked iPhone 6 before the 6s came out and my friends thought I was crazy. I’m on a month to month no contract plan and own my phone. Love this article!

  • James Pollard @PersonalFinanceGenius says:

    Leasing a phone has to be way up there on the list of stupid things you can do with money. You said in your article that you switched from Verizon to Cricket. I’m going to have to check that out, because Verizon is getting about $140 per month from me. Gulp! I would much rather have the $105 if Cricket is only $35. I’ll have to look into that.

    • John Schmoll says:

      Yea, we made the switch to Cricket 4-5 months ago I believe. We got the $40/mo plan but they offer a $5/mo discount if you sign up for autopay. You can even bring some old phones over – both of ours qualified so it was an instant savings for us.

  • Tonya@Budget and the Beach says:

    I pay 70 with at&t and 2GB of data. Not too bad. When my iPhone got run over last year they tried to sell me on a month to month plan, which I felt was stupid too. I think people just to not have a lot of cash up front to pay for things, so they think it’s a better deal.

    • John Schmoll says:

      I think that’s a big thing – they play on people not having a ton of money upfront. They think paying the monthly fee is better than a one time payment for a phone. It’s just simple math really.

  • Leslie says:

    I went without a cell phone altogether for about 9 months and have been working my way back from there. My friend and I both used Republic Wireless for exactly a year before realizing that you get what you pay for. It was extremely unreliable and you have to pay for your phone outright. So if I’m dropping $$$ on a phone, I want to have more options and reliability. Currently I own my iPhone 6 and am using ATT. This is exactly back where I started 2-years ago when I ditched my cell service. At least it’s a conscious decision now.

    • John Schmoll says:

      Sorry to hear about your experience with RW. I know they don’t work for everyone, but by and large haven’t heard a ton of complaints. You should look into Cricket once your contract is done with AT&T as they’re on the AT&T network at a fraction of the cost. We’ve been with them for several months and have not had a problem at all with them.

      • Leslie says:

        I just don’t see these smaller carriers providing a substantial discount anymore. I pay $80 with ATT and RW was $50. So I’m paying an extra $360/year. That is 0.008% of my yearly income. Is it really worth dealing with second-rate service? When I first had RW, I used the wifi only at $10 so that was worth it.

        • John Schmoll says:

          That’s definitely a valid point. There’s something to be said about what value you’re getting out of what you’re paying for. That’s why we didn’t move to RW because several friends in our area said they weren’t good here. In that case, it didn’t make sense to move to them. Cricket, though, being on the AT&T network made sense to us since AT&T is good in our area. $100/month isn’t a ton to us (but it definitely is to others) – though I’d much rather have that money and put it to use than spend it.

          My larger concern is someone just blindly accepting leasing a phone because they think it’ll be cheaper for them. In many cases it won’t. In some cases it may very well make sense to stay with a larger carrier, like in your case, but the value is there for you.

          I would disagree somewhat with the discount aspect. The larger carriers are making these changes because the no-contract players, collectively, are changing the game. But, to your point, not all no-contract outfits will really provide a significant value. We have to find the ones that will and still provide quality service.

  • Michael Belk says:

    That is why i got rid of my smartphone, it was costing me 80.00 x 12 = 960.00 just for the privilege of having a cellphone.

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