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Contract smartphone plans vs no-contract: pros and cons

More folks have begun switching to prepaid in the United States, finding its a way to get great service at a much cheaper price. Thanks to Tmo, we've also seen the growth of no-contract postpaid. So how do contract vs no-contract options compare?
May 30, 2014
Verizon logo 2013

Back in November I wrote an article about ditching your contract and going unlocked, and it’s a common sentiment you’ll here across the web: ridding yourself of a contract means more freedom and in most situations it costs less in the long-run. Of course, I’d be lying if I said there were no trade-offs with going with a prepaid or no-contract post-paid carrier.

As with nearly everything in life, both contract and no-contract options have their own set of pros and cons. With that in mind, let’s jump in and explore the positives and negatives of both sides of the fence.

Keep in mind that this piece was written with North American carriers (particularly the U.S.) in mind. While some of these points may apply to other regions across the globe, others will not.

Contract plans

Although I no longer personally have a contracted commitment to a carrier, I have certainly played this game before with multiple different carriers: Sprint, Verizon, AT&T and US Cellular. While I’m ultimately happy with my decision to leave these guys behind, there are some positives to signing that contract.


Better customer service. While this isn’t necessarily true for all prepaid carriers and won’t hold true for postpaid no-contract plans, in many cases customer service for contract plans tends to be better. After all, you’ve agreed to commit two years to their services and it’s only natural that they would do their best (in theory) to keep you happy so you renew your contract when your time with them is up.

Network priority. If the data network is highly congested, who do you think is going to get priority? Bingo, the guy signed up to the contract. That said, this has never been a problem for me personally, though I’ve heard complaints from those in more congested markets about potential slow-down when on prepay versus contract.

You pay less for your phones. Even if T-Mobile and the other big carriers offer financing for their no-contract plans, we can’t ignore the fact that you’re paying $500+ for a phone that might only be $50 – $200 on-contract. While the carrier gets its money back by subsidizing the costs through higher plan rates, some folks are willing to put up with this if it means they don’t have to pay so much up front.

Family plans can be worth it. Some of this depends on what prepaid, postpaid no-contract or contract plan you choice — but in some cases large family plans on contract can be cheaper than going prepaid. Still, both T-Mobile and Cricket (now owned by AT&T) offer really good family rates that easily beats out the contract plans.

Better coverage. While this point doesn’t necessarily apply to no-contract postpaid plans, prepaid plans often have limited coverage when compared to contract plans. For example, my wife experimented with Verizon prepaid for a while and found that there were many areas she was roaming that we knew for a fact “on-contract” Verizon customers would have been covered without having to pay any kind of roaming fee. Again, it really depends on your prepaid/no-contract carrier, but in many cases, contract plans still hold the edge here.

Device insurance. While there are certainly 3rd party phone insurance options and some prepaid carriers like Cricket even offer their own insurance plans, the truth is that signing up for insurance on a postpaid contract carrier is usually a much easier process. Whether insurance is worth the deductible and monthly fees is a matter of opinion, however.


More expensive. Contract plans might give you cheaper phones up front, but the actual month to month costs are much higher. In an earlier article we found that a Verizon contract plan with 2GB data had an estimated ownership cost of $2,995. In contrast, Straight Talk had an ownership cost of $1407. Obviously these prices will vary considerably depending on how expensive of a phone you get but there’s no denying that you pay more in the long haul.

Less freedom. You are committed for two whole years and the only way out is a hefty termination fee. Even going overseas with your phone is a huge hassle or, at the very least, a costly affair.

Less phone choices. While this was once the opposite situation, most GSM-based prepaid services allow you to bring any phone over that works with T-Mobile/AT&T frequencies, including imported devices. With a carrier contract, however, you’re stuck with only the phones that your specific cell phone provider offers.

Fees. Activation fees, monthly access fees, monthly rate fees – contract plans tend to be riddled with fees. On the prepaid and no-contract postpaid side, you generally have fewer fees and sometimes there’s just taxes. In Cricket’s case, you don’t even have taxes as it is all included in the advertised price.


No-contract and prepaid plans

There can be some very real differences between the service provided by a postpaid no-contract carrier like T-Mobile and a more traditional prepaid option like those from Cricket, Aio Wireless or T-Mobile Prepaid. That said the goals are pretty much the same regardless of which of these options you choose: you want to save money and you want more freedom to do what you like with your device.


Big savings. This is, without a doubt, the biggest advantage. Regardless of whether you’re going with a postpaid no-contract plan or a prepaid offering, odds are you will save a very noticeable amount each month as opposed to what you’d be paying as a on-contract customer. As an additional bonus, there are usually less fees on the prepaid and postpaid no-contract side of the fence, and the terms are usually a bit more transparent.

No credit checks. For those that either have no credit, poor credit or simply don’t want to involve their credit score just to get a phone — prepaid is a way around this barrier. Keep in mind that postpaid no-contract plans could still require credit checks and deposits, though.

Flexibility. Need to take a break from paying for phone service? No problem. Have to go overseas? That’s cool, and if you have a GSM-based unlocked phone, you can even take your headset with you and put in a SIM card from the country you are visiting.

You own your phone. It’s unlocked and you can do with it what you please. Not satisfied with T-Mobile? Switch over to StraightTalk. If StraightTalk doesn’t fit the bill, you have other options including Cricket, AT&T Go Phone and the list goes on.

More phone choices. Particularly if you are on a GSM-based network, you can bring just about any device over as long as it supports your network’s frequencies. This means you have considerably more phone choices than most carriers. This was once the opposite situation, but the ability to bring your own phone to most prepaid networks has changed everything.


Phones cost full price. While there’s a growing number of handsets that don’t cost that much (Moto E, Moto X, Nexus 5, OnePlus One), the reality is you’ll still need to pay anywhere from $130 – $400 for a decent phone and sometimes more than this. That’s a hard cost to swallow all at once for some. Thankfully postpaid no-contract plans from carriers like T-Mobile offer an alternative: you can pay for your full-priced phone via monthly installments. For those that end up paying outright, just take comfort in knowing that you’re saving thousands in the long run.

Not the top priority for a carrier. Whether it’s the coverage zone or network priority, contract plans generally do better here. Again, it really depends on what prepaid or no-contract postpaid carrier you go with.

Second-rate customer service. Often times prepaid customer service isn’t as good as the big dogs, especially if you are with an MVNO. If you stick to a bigger prepaid carrier or a postpaid no-contract service, this won’t be a problem.

Thinking about ditching that contract? Take a look at the top unlocked cheap smartphones.


The compromise

As you can see, there are many potential advantages and disadvantages to be found on both sides of the fence. Of course some of these advantages and disadvantages won’t hold true in your own experience, as it often depends on the carrier and plan you end up with.

For those that are allured by the idea of saving money and having more flexibility but also looking for a more conventional contract experience, the best compromise here might be to consider a postpaid no-contract plan. With postpaid no-contract, you’ll be able to finance your phone (if you choose) and will have the same coverage and customer service opportunities as a contract carrier.

As for pricing? The costs will still be higher than most prepaid alternatives, but you’ll get noticeable discounts from most carriers if you decide to go off-contract. For those going with a no-contract postpaid plan, T-Mobile still remains the very best choice, providing you live in an area with solid coverage.

What do you think, do you prefer prepaid, contract or postpaid no-contract? What do you feel are the strongest advantages of your preferred service? Any other pros or cons you can think of for either contract or no-contract options? Let us know in the comments below!