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Should You Buy a Prepaid iPhone?

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iPhone 5C

iPhone 5C

image copyright Apple Inc.
Updated December 17, 2013

The biggest cost of owning an iPhone is the monthly fee for voice, text, and data service. That fee--often US$99 or more per month--adds up and, over the course of a two-year contract, quickly becomes thousands of dollars. But that's not the only option for iPhone users anymore. With the addition of prepaid iPhone carriers like Boost Mobile, Cricket Wireless, Net10 Wireless Straight Talk, and Virgin Mobile, you can now spend just $45-$55/month to get unlimited voice, text, and data. That low monthly cost is pretty appealing, but there are pros and cons to the prepaid carriers that you need to be aware of before making a switch.

Pros

Lower monthly cost
One of the chief reasons to consider a prepaid iPhone is the lower cost of monthly plans. While it's common to spend US$100/month on phone/data/texting plans from the major carriers, the prepaid companies charge about half that. Expect to spend more like $45/month on a combined voice/data/text plan at Straight Talk or $55/month from Boost, Cricket, Net10, or Virgin.

Unlimited everything (sort of)
The major carriers have moved towards unlimited plans--all you can eat calling and data for a flat monthly fee--but there are still some extra charges, like texting plans. Not so on the prepaid carriers. With those companies, your monthly fee gives you unlimited calling, texting, and data. Sort of. It should really be "unlimited," as there are limits. Check out the Cons section below to learn about them.

No contracts. Cancel any time - for free
The big carriers generally require two-year contracts and charge what's known as an early termination fee (ETF) for customers who sign contracts and want to cancel them before the term ends. These hefty fees--often as much as $350--are designed to prevent customers from switching companies too often. With prepaid companies, you're free to switch whenever you want for no extra cost; there are no ETFs.

Lower total cost - in some cases
Because their monthly plans are less expensive, prepaid iPhones can be cheaper to own and use over two years--in some cases--than those bought through traditional carriers. While the cheapest phone and service combination from a major carrier costs a bit over $1,600 for two years, the most expensive combination tips the scales at over $3,000. The high-end price of a prepaid iPhone for two years is just over $1,700. So, depending on what model phone and level plan you expect to purchase, prepaid could save you a lot of money.

No activation fee
The price of an iPhone at the traditional carriers includes an activation fee built in that isn't quoted in the sticker price. The activation fee for new phones isn't much, but usually runs $20-$30 or so. Not so at the prepaid carriers, where there are no activation fees.


Cons

Phones are more expensive
While the monthly plans for prepaid iPhones are much cheaper than plans from the major carriers, that situation is reversed when buying the phone itself. The major carriers subsidize the price of the phone, meaning they pay Apple the full price of the phone and then discount it to customers to entice them to sign two-year contracts. Since prepaid carriers don't have contracts, they have to charge closer to full price for the phones. That means a 16GB iPhone 5C from a prepaid carrier will cost around $450, as opposed to $99 from a carrier that requires you to sign a contract. Big difference.

Often can't get top-of-the-line phones
The other hardware-related downside of the prepaid carriers is that they don't offer the most deluxe versions of the iPhone. As of this writing, Cricket only offers the 16GB iPhone 5S, while Straight Talk only has the 4S and 5, not either of the 5C or 5S. So, if you need the latest model or more storage capacity, you'll need to go to a traditional carrier.

Unlimited plans aren't truly unlimited
As hinted at above, the unlimited prepaid plans aren't truly unlimited. While you really do get phone calls and text messages without end, the amount of data you can use on these "unlimited" plans does in fact have some limits. Both Cricket and Virgin allow users 2.5GB of data per month at full speed. Once you pass that mark, they reduce the speed of your uploads and downloads until the next month.

Slower 3G and 4G
Unlike the major carriers, neither Cricket nor Virgin own their own mobile phone networks. Instead, they lease bandwidth from Sprint. While Sprint is a perfectly good carrier, for prepaid iPhone users, this isn't entirely good news. That's because, according to PC Magazine, Sprint has the slowest 3G network among iPhone providers--which means that iPhones on Cricket and Virgin will be equally slow. For the fastest data speeds on the iPhone, you need AT&T.

No Personal Hotspot
When you use an iPhone on a major carrier, you have the option to add a Personal Hotspot feature to your plan. This transforms your phone into a Wi-Fi hotspot for nearby devices. Some pre-paid carriers, such as Boost, Straight Talk, and Virgin, don't include Personal Hotspot support in their plans, so if you need that feature, you either have to choose Cricket or a major carrier.

No Simultaneous Voice/Data
Because the pre-paid carriers tend to share networks with established companies, they have the same limitations as those larger companies. For instance, because Sprint's network doesn't support simultaneous voice and data use, neither do the pre-paid carriers on it. If you want to use data and talk at the same time, choose AT&T.

Not available in all areas
Buying a prepaid iPhone isn't as simple as walking into a store or going to a website and forking over your credit card. While that may be the case with the major carriers, with at least one prepaid carrier, where you live determines what you can buy. When researching Cricket for the original version of this article, the company's website asked me where I was located in order to determine whether I could buy an iPhone. No matter where I said I was (I tested California, Louisiana, New York, Pennsylvania, Rhode Island, and even San Diego, home to Cricket's parent company), the site told me I couldn't buy an iPhone. When updating this article in December 2013, this restriction seemed to be gone. Still, similar issues could crop up with any pre-paid carrier.


The Bottom Line

Prepaid carriers offer a much lower cost on monthly plans, but as we've seen, that lower cost comes with a number of trade-offs. Those trade-offs may be worth it for some users, and not worth it for others. Before you make a decision, take a hard look at your needs, your budget, and whether you think the pros outweigh the cons. For me, for instance, they don't. I need faster data speeds, more monthly data, and a higher-end phone. But if you don't, a prepaid carrier could be a great deal.

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