Should You Finance a New Cellphone?

Pros & Cons of Financing Your New Phone

Young woman looking at mobile phone

 Carlo A / Getty Images

If you're ready to buy a new cellphone, you have a few general options: pay in cash, pay over a specified period with an installment plan, or charge the purchase to a credit card.

Financing a cellphone purchase can be advantageous if you need time to pay, want to earn credit card rewards, or build your credit. But the benefits vary, depending on which financing option you choose or are eligible for.

The Basics of Financing a Cellphone

Paying cash for a cellphone may not always fit your budget. For example, the iPhone 12 and iPhone 12 Pro (introduced in October 2020) start at $699 and $999, respectively, before trade-in.

If you'd rather not, or simply can’t, pay cash for a new cellphone, consider your financing options to determine which (if any) is the right move.

Apple Card

If you're an iPhone loyalist, financing a cellphone with the Apple Card might be a no-brainer. This card allows you to pay for Apple product purchases over time in monthly installments, interest-free. As an added bonus, you get 3% daily cash back on Apple purchases up front, which is deposited to your Apple Card in the Wallet app.

You must own a compatible iPhone and have the Wallet app installed to apply for the Apple Card.

Samsung Line of Credit

If you prefer Samsung devices to Apple, you could use a Samsung line of credit to finance a new Galaxy purchase. With this financing option, you can get a 0% APR for up to 24 months. After 12 months, you have the option to upgrade to a new Samsung Galaxy with a credit of up to 50% of the purchase price—as long as your current phone (the one you’re trading in) is in good condition.

Depending on what type of Samsung financing you’re approved for, you could be charged deferred interest if you fail to pay off your phone purchase within 6-24 months.

Because interest charges can be retroactively applied from the date of purchase, deferred interest financing can be a very expensive way to buy a new phone (if you can’t pay in full before the promotional period expires).

Service Provider Financing

Another option is to bill a cellphone purchase to the account you have with your service provider. Verizon, for example, allows eligible customers to bill cellphones and accessories directly to their account. With this type of offer, you pay the amount due by your next billing statement.

This option doesn't give you much time to pay, but it is interest-free. You might consider it if you want a new cellphone now and will have the cash to pay for it before your next statement is due. 

Retailer Financing

You can also finance a cellphone with certain retailers. Best Buy, for instance, allows you to finance unlocked cellphones at 0% when you use a Best Buy credit card. You can also earn up to 10% back in rewards if you open a new retail store card to buy your phone.

Retail financing may be deferred interest financing, which means you must pay the balance in full before the promotional period ends to avoid paying the interest that was previously deferred.

Credit Card

A credit card may allow you to earn rewards, such as points or cash back, on your phone purchase. And you don’t have to worry about deferred interest charges if you can’t pay off the purchase within a specific timeframe.

Installment Plans vs. Credit Cards

Installment plans and retailer financing offers, such as Apple Pay or financing a phone with Best Buy, aren't identical to credit cards for financing purposes.

Installment plans may:

  • Allow you to pay 0% interest for a set period of time
  • Have a set monthly payment amount
  • Require you to sign a new cellphone contract
  • Give you credit toward a new cellphone purchase when trading in your old one
  • Defer interest charges for a set promotional period

A credit card, on the other hand, charges an annual percentage rate (APR) for any purchase, including a cellphone, unless you're opening a new card with an introductory 0% APR. But unlike installment plans, you don't have to sign a new cellphone contract, and you're only required to pay the minimum due each month. A credit card may also allow you to earn rewards.

When considering plans to finance your phone, find out if interest charges are deferred and due if the balance isn’t paid in full once the promotional period expires.

How Financing Impacts Your Credit

Cellphone financing can impact your credit in a few ways.

  • Hard Credit Inquiry: You could lose a few credit-score points if the financing company you apply with performs a hard check of your credit. If you have good credit, the impact may be minimal.
  • Additional Payment History: You have the opportunity to add positive payment history to your credit report. Payment history is the most important factor in FICO credit scoring, so financing a cellphone could improve your score if you make on-time payments. 
  • Credit Utilization Ratio: Financing a cellphone with a credit card will affect your credit utilization ratio, or the amount of available credit you have versus the balances you carry. The lower you keep balances relative to limits, the better your credit score.
  • No need to pay cash out of pocket

  • Financing a cellphone could help you build credit

  • You could qualify for 0% financing

  • Your credit score could be negatively impacted

  • Deferred interest financing can be expensive

  • You may have to sign a new contract

Pros Explained

  • No need to pay cash out of pocket: One of the main benefits of financing anything is that you don't have to part with a lump sum of cash. You can get the cellphone you want now without draining cash reserves.
  • Financing a cellphone could help you build credit: Financing a cellphone can help build credit if you pay on time, consistently. Improving your credit score makes it easier to qualify for other types of credit and be approved for favorable interest rates.
  • You could qualify for 0% financing: Cellphone financing can be a money-saver if you qualify for a 0% interest deal, and pay in full before the promotional period ends.

Cons Explained

  • Your credit score could be negatively impacted: Financing a cellphone may temporarily ding your credit score when applying for an installment plan or credit card. If you fall behind on payments, your score could take even more of a hit.
  • Deferred interest financing can be expensive: A deferred interest installment plan is expensive if you don’t pay the balance in full before the promotional period ends. Interest that was deferred from the purchase date is applied to your account.
  • You may have to sign a new contract: Financing a cellphone may require signing a new service contract. If you'd rather not get locked into a contract, consider financing with a credit card or retailer, or paying cash.

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