Apple iPhone Upgrade Plan

For those of you that watched the Apple “Hey Siri” event keynote, or have been following up on the Internet, today Apple announced their iPhone Upgrade Plan.

Apple’s new upgrade plan is similar to what some of the wireless network providers are already providing, and aims to allow consumers to take advantage of a new iPhone model every year, without having to wait for contract dates to expire. Just like the network provider offerings, it seems great on the surface – you pay a small amount each month and get the latest technology in return. When the next gen iPhone comes out, you hand in your current model and get a new model. This is very much like leasing a car, you pay for what you use. But how does the total cost over 12 months stack up to just buying the phone outright?

Below is a table I put together in Excel that includes pricing for the iPhone 5s, 6, 6+, 6s, and 6s+, per the numbers published by Apple today and from AT&T. I didn’t include pricing from Verizon, Sprint and T-Mobile because their plans are typically comparable (sort of). Besides, the point of this blog post was to differentiate the costs for buying a new iPhone outright every 12 months verses buying into a leasing plan from Apple.

 

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Looking at the table, you can see that I priced out the various iPhone 64GB models, with the exception of the 5s, which only comes with a maximum of 32GB. The calculations in this table hinge on the typical resale for used iPhone devices. I based my resale numbers on the average price that an iPhone 5s, 6 and 6+ sell for today, and then factored the price for 12 months from now. So, the resale of an iPhone 6s plus in 12 months should be about the same price as a used iPhone 6 plus today.

Let’s assume you decide to buy a new iPhone 6s when it comes out next week. If you buy the phone outright you can expect to part with $749 + $99. I’ve included Apple Care because the new Apple Upgrade Plan includes it. After 12 months, when we assume Apple with have the next model version, you’ll still own your 6s outright and can probably sell it for $500. So, you’ll be in the hole by $348, which is about right for a year of wear and tear on an electronic smartphone. Compare this price with the Apple Upgrade plan, which costs $32.45 per month (numbers from the Apple web site).

When Apple introduced the plan in early September, the first thought was that this was a lease plan – one where you hand back the device after you’re done using it. However, the plan appears as an interest free loan (according to @maccast). The monthly payment equates to the cost of the phone, plus Apple Care, spread over 24 months of payments. This being the case, the numbers in the above table are subjective. If you plan to trade your iPhone for the next model, Apple will give you the trade in value based on wear and tear as well as the value from the Apple recycle trade in program. This assumes your phone is free from damage (cracks), powers on, and retains a charge. Anything less than good condition and you’ll likely get less for trade in. Should you decide to keep the phone, Apple will continue to charge you the monthly fee until the balance is paid off, or you decide to pay the remaining balance in full (or so I think). What I’m unclear on is whether you can hand back your iPhone after 12 months, having paid 12 monthly payments, and then walk away free and clear – no more payments, no more device. If so, this is then a leased phone in the same sense as a leased vehicle – hand back and walk away, buy remaining balance, or trade towards the next model.

Next, let’s look at the 6s plus. What’s interesting here is that the loss for buying outright is the same as that of the 6s. Although the 6s plus sells at $100 more than the 6s, you can expect to make $100 extra come time to sell it. However, look at the amount you’ll pay for the upgrade plan – $449.40 – the difference is now closer to $100.

If we’re talking about upgrade plans, we shouldn’t ignore At&T’s Next plan. Again, I’m pretty sure Sprint and Verizon offer something similar, but for comparison sake… With AT&T’s Next program you end up buying the phone outright and the payments are just spread out over a 24 or 30 months term, depending on the plan. Assuming the same resale value as before, you’re at the same loss value, only you had most of the money in your bank for 12 months, making some, if not small, amount of interest.

Finally, there’s the 2 year contract pricing – it appears that the network providers are getting away from these plans, besides, they’re too restrictive in not allowing changing to other providers mid-contract and phone upgrades are limited, so you’d be insane to sign up for one of these plans for another 2 years. The costs aren’t great either – it used to be the case that the network providers subsidized the cost of the phone if you agreed to a fixed 2 year contract. As phones got more expensive (we’re not talking a $99 flip phone anymore) providers realized they were losing money, especially since plans have become more affordable. I found out the hard way when I purchased my iPhone 6, last year, for $299, that AT&T increased my monthly plan charge by $25. Over the life of the plan, that equates to $600, on top of the $299 I’d already paid. That’s more than the cost of the phone at retail.

To conclude – the Apple Upgrade plan isn’t too bad on cost. If you like to get the latest iPhone each year and want peace of mind with Apple Care, then this could work for you. However, if you look after your phone and prefer to take your chances on no Apple Care and plan on selling your phone in 12 months, you could save yourself some $$$. On the other hand, if you’re fine keeping a iPhone one or two generations behind the current, it makes a whole lot more sense to buy outright at the start or amortize the cost over 24 months.