Prepaid vs Postpaid Cell Phone Plans - Which is Better?

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.

To meet the growing demands of the consumers, cell phone carriers have tailored several plans to meet the needs and wants of nearly any kind of data user.

At the most basic level, these cell phone plans are broken down into prepaid cell phone plans and postpaid cell phone plans.

Below, I'll explain the differences and similarities between both types of plans, and suggest which kind I believe is better.

In This Guide

The Pros of Prepaid Cell Phones

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.

Flexible Plans

One great benefit with a prepaid cell phone plan is you have flexibility. 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 postpaid cell phone plan, you pay a specific amount per month for a blanket of services. 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.

Conversely, with postpaid 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 postpaid 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.

Related: H2O Wireless is an extremely affordable prepaid phone option that offers a flexible variety of plans.

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.

What is a Postpaid Cell Phone Plan?

You're likely already familiar with the concept of a postpaid cell phone plan. Chances are you, and the two-thirds of America who own smartphones, have a postpaid cell phone plan right now. In reality, the postpaid cell phone plans and cell phone contracts are very similar.

A cell phone contract is an agreement between you and your cell phone carrier for a period of time (usually 24 months) where you pay for a given service and data plan. Cell phone contracts have slowly begun to fade away as the industry, and the consumers, change.

A postpaid cell phone plan is the new terminology major cell phone carriers are marketing to replace their contracted cell phone plans. Whereas a prepaid cell phone plan requires the user to pay for a specific, fixed amount of data they use and come with little strings attached, a postpaid service agreement is a plan that is billed to the customer based on how much data they've used.

Consumers choose which plan suits their needs the most, typically defined by how much data they have allotted to them. At the end of each month, the carrier bills the consumer for how much data they used. For example, you can choose a Verizon cell phone plan and receive unlimited talk, text, and 8 GBs of data, amongst a number of other nifty perks. However, you will get charged extra if you exceed the amount of data in your plan.

Sometimes, you may even experience data throttling and other penalties as a result.

Instead of a contract locking people into their service, a postpaid cell phone plan allows the consumer to leave their service at any time, similar to a prepaid cell phone plan. The major difference, however, is the payment plan.

A non-prepaid cell phone plan is likely to have a payment program attached to it that spans several months (if not up to 2 years). While this concept is nothing new to the cell phone industry, it's important to note that the end of contract plans does not mean you're free from a cell phone provider like you are with a prepaid plan. After all, if you're on a 24-month device payment plan that requires postpaid service from the carrier you've subscribed to, then that isn't much different than a 2-year contract, right?

pros of postpaid cellphones

The Pros of Postpaid Cell Phones

Get the newest phones: As your 24-month payment plan nears its end, you may be eligible to upgrade to the latest and greatest cell phones. If you love technology and enjoy staying on the cutting edge of cell phones, a postpaid cell phone plan is for you. Some cell phone carriers even offer early upgrading.
Never run out of data: No matter what postpaid cellphone plan you purchase, and no matter how many gigs of data allotted to you, you'll never truly run out of data anymore. As of the time of this writing, all the major cell phone carriers provide extra data to users who exceed their monthly limit. You can be sure that you'll never run out of minutes, texts, or data.
No manual refill required: One of the biggest gripes with prepaid cell phone plans is that you have to stay on top of refilling your minutes and data whenever you run out. With a postpaid cell phone plan, you'll have the convenience of auto-renewing every time. No need to worry.
Extras and Bonuses: Not many prepaid cell phone plans have gotten on the bandwagon and offered special bonuses and services for their consumers. On a postpaid cell phone plan, you can find carriers that offer unlimited video streaming, cloud photo storage, hotspot capabilities, and more.
Great for families: Postpaid cell phone plans are often perfect for families or large groups of people who want multiple lines tied to a single account and under one monthly bill. Many carriers offer specific family cell phone plans that you can see here.

The Cons of Postpaid Cell Phones

Excess Charges: You may get charged extra if you exceed your monthly allotment of data provided by your plan. Excess charges can be hefty, such as $10 per extra GB, but this price varies among cell phone carriers.
Data Throttling: If you exceed your monthly allotment of data, or use a lot of data on an unlimited data plan, you may experience severely slowed data speeds. Cell phone carriers often throttle, or restrict, the speed of high-data consumers during peak activity hours.
Not as flexible: Canceling a prepaid cell phone plan is easy--simply don't refill your data and minutes and you won't be charged anymore (you won't service anymore, either). Canceling a postpaid cell phone plan is much more difficult. You'll have to cancel through your provider, and likely will have to speak to their dreaded customer service department.
Credit Checks: It's not common, but some cell phone carriers may require a credit check before you subscribe to a plan. Depending on how healthy your credit is, you may experience extra fees.

Postpaid vs Prepaid Cell Phones

Now that I've discussed both kinds of cell phone plans, which one is better? Well, like most things in life: it depends.

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.

On the flipside, a postpaid cell phone is perfect for those who want to stay up-to-date with the most advanced devices, families with multiple lines, and large data users. You won't have to worry about refilling your minutes and data every month, and you can experience plenty of neat perks.

Ultimately, the best cell phone plan is the one that fits your lifestyle, budget, and actually covers where you live.

Read More: Smartphones can also be purchased using in a prepaid model. Take a look at our prepaid smartphones directory for more information.

Recap

Both prepaid and postpaid cell phone plans have their merits. If you plan on sticking to a budget, the cheaper prepaid cell phone plans are for you. If you want the best and newest devices, then you'll have to choose a postpaid plan.

For a list of the best prepaid cell phone plans, you can check out our review. After you've checked out which cell phone plan is right for you, we can tell you the easiest way to switch cell phone carriers.