Prepaid vs Contract Cell Phones

Prepaid Cell Phone Plan or Contract Cell Phone Plan? We share the pros and cons of both

Comparing Prepaid & Contract Cell Phone Plans

Sometime in the last few years, cell phones migrated from the list of discretionary wants to non-negotiable needs. Not only that, but the list of basic requirements and essential functionality for the average cell phone user has also grown, making flip phones that were cutting edge just a decade ago about as obsolete as the payphone.

With such high demand, cell phone providers are cashing in, charging exorbitant fees for basic plans and data packages, most requiring a long-term contractual commitment.

For those consumers looking for basic phone functionality that's a bit more budget friendly; however, the prepaid cell phone can provide a solution that satisfies both communication and savvy spending needs.

Prepaid vs Contract Cell Phones

The Pros of Prepaid Cell Phones

Advertisement

Flexible Plans

One great benefit with prepaid cell phones is you have flexibility in plans. This means you pay for what you will use.

Prepaid cell phone plans allow you to pay on a month-to-month basis, keeping you from getting locked into a contract you might not be able to afford or want later on down the line. Prepaid phones plans are also available without a credit check for customers with low or no credit scores who are unable to qualify for long-term plans.

Many providers offer a flat monthly fee that gives you access to texting, talk time and data. In addition, you can also sign up for services where you only pay for the days you use the phone. This flexibility gives you more control over which services you pay for whereas with a contract cell phone plan, you pay a specific amount per month for a blanket of services especially if you decide to get a smartphone. This means you are paying for services you might not use.

Easy Sign-Up Process

With prepaid cell phones, there are no credit checks or deposits you must pay to use service. You simply buy the phone you want and the corresponding monthly service amount that best fits your needs.

Advertisement

Conversely, with contract plans, the provider will check your credit to see if you have any outstanding balances with other cellular companies. If you have poor credit, they might allow you to obtain service but you must pay a deposit first. This makes prepaid cell plans a better alternative if you have limited credit or have had financial problems in the past.

No Termination Fees

With a contract cell phone, you can either buy a phone at a discounted rate with a two-year service commitment or finance the full price of the mobile device. In either instance, if you switch service providers before fulfilling your terms you owe a balance to the company you left, which can result in hundreds of dollars. This is why a prepaid cell phone is a great alternative because you have the freedom to switch providers any time you choose and you don't have to worry about paying costly fees to achieve this.

While it's true you will need to make a higher initial investment to obtain a phone with a prepaid plan, a smart money rule is to only buy what you can afford now, which is what this forces you to do.

No Risk

Because prepaid cell phones don't require a long-term commitment, there's no risk in simply trying the service to see if it's worth the savings. If you find that the coverage is too limiting or the service insufficient, you can always change your plan the following month.

The Cons of Prepaid Cell Phones

Higher Phone Costs. Most traditional cell phone providers offer a "free" or seriously discounted phone every two years in conjunction with the long-term contract, whereas prepaid cell phone providers require you to purchase new phones in full upfront. In reality, though, the price of the phone is built into the monthly charges of the traditional contract, so if you can snag a deal on your prepaid phone, you might still be better off.

Changing Phone Number. If you miss a payment or fail to renew your contract each month, you could forfeit your phone number- though this is easily avoidable.

Limited Coverage. Before committing to a prepaid phone plan, check the carriers' coverage in your region. While prepaid cell phones are available nationwide, coverage maps differ, particularly in more remote areas. Do a coverage search to ensure any places you regularly frequent will have sufficient service for your needs. Some prepaid cell phone service providers share towers with wireless giants like Sprint and AT&T, so you get similar coverage at a much lower rate.

Pros and Cons of Prepaid Cell Phones Recap

Prepaid cell phones are a great fit if you are looking to control how much you pay for the services you use. While they do require an initial investment in buying the phone and service, over time you won't have to worry about termination fees if you want to switch providers.

Best of all, obtaining a prepaid cell phone is easy since you don't have to worry about credit checks and deposits. This makes them a great option to consider if you want all the benefits of cell phone use without the high costs.

For a list of the best prepaid cell phone plans, you can check out our review.

Last Updated:

Join the discussion

Replying to Cancel

Your comment has been submitted and is awaiting approval from one of our administrators. Thank you for your readership!

Loading

Submitting your comment...

Money Saving Blog

Helpful money saving tips and advice so can you save on everyday purchases.

Read Now

Join our newsletter to receive the latest money saving advice, reviews, and offers!

YesI want to learn how to be a smart consumer!NoI'm not concerned about wasting money

100% privacy. We will never spam you.

Where should we mail you our
money saving advice, reviews & offers?

100% privacy. We will never spam you.

Adding your email to our mailing list.

Please wait just a moment

Your email has been added!

Thank you for signing up.

Close

Advertiser Disclosure

In order for MoneySavingPro to remain a consumer free service, many of the companies covered in our industry reviews compensate MoneySavingPro for new sign ups.

However, the results of our comparison tools, the rankings of the providers and the information presented is not affected by compensation. Indeed, many of these companies approach us for an advertising partnership after we have already written a published their reviews.

While we try to research and review as many providers as possible in the 100+ industries we cover, we have not reviewed every company available.

Our rating system is independent of compensation and reflects our true understanding of the industry and the company based on a variety of factors. The companies that receive the highest rating will always be the providers that we believe offer the best value to the consumer.