All major carriers in the United States currently offer some form of leasing or equipment installment plan (EIP) that may be appealing for consumers looking for low-commitment options with low cost of entry. Roughly half of all smartphones purchased in the United States were linked to installment plans in the three months ending August 31, 2020. A substantial portion of the industry for wholesale cell phones has been driven by the adoption of these plans. It is important to understand how these plans work given their profound impact on our industry.
Leasing a smartphone works similarly to leasing a vehicle. While some lease with the intent to purchase, this isn’t required. Carriers provide built-in options for buying or swapping phones once lease periods are up. It’s important to say that not all carriers offer genuine “lease” options. Among the major carriers, both Sprint and T-Mobile allow for leases. AT&T and Verizon have not jumped on the trend. While it’s not possible to lease devices through AT&T and Verizon, both carriers do offer pay-to-own EIPs that work similarly to lease programs.
As the market leader, it is surprising that Verizon has yet to adopt more flexible leasing options. While Verizon offers a monthly payment plan for devices that delivers fewer bells and whistles than its peers, specifics like waived interest and finance charges still make it an attractive option. The payment period for nearly all devices is 24 months. Customers who enter into device installment plans with Verizon can choose to pay a device’s total price at any time. There is also the option to trade in paid-off devices for their full value toward new devices.
AT&T allows customers to take on installment plans with heavy trade-in potential. Customers who opt in will pay the full retail price of their device over the course of 30 months to increase monthly affordability. AT&T customers who sign up for installment plans are eligible to upgrade to new devices once they pay off a certain percentage of the price. Most of the customers who sign up for payment plans through AT&T can walk away with new smartphones for $0 down without any finance fees attached.
Sprint offers phone leases through a program called Flex Lease. Customers get a low cost of entry with the option to purchase, upgrade, continue, or return a device at the end of 18 months. Sprint retains ownership of a leased device unless the customer decides to pay off the remaining balance. In this case, Sprint allows for one-time payment or nine monthly installment payments. While Sprint does not provide flexibility regarding payment totals or length, customers can choose to pay off a lease early or opt for the purchase option at any time during the lifespan of a lease. A Sprint customer seeking a lease agreement may find themselves paying a “rent charge” with every monthly payment if they have a poor credit rating. In addition to phone leases, Sprint offers options for paying for phones and equipment in monthly installments.
The T-Mobile JUMP! program offers a quick way to make the leap to an upgrade frequently without the strings that come with traditional installment plans. A standard JUMP! lease covers 18 months; however, JUMP! allows customers to “jump” leased devices as frequently as every 30 days. Customers participating in the program are asked to bring in their most recent phone for inspection to ensure that everything is in working order before swapping for a new device.
What’s interesting about T-Mobile’s lease plan is that it drives traffic into stores. Phones that are eligible for JUMP! can only be purchased with the help of T-Mobile Mobile Experts at T-Mobile retail locations. The options offered at the end of a lease period are to return the phone, purchase the phone outright by covering the remaining balance, or pay off the device over a nine-month period. T-Mobile also offers a separate EIP that allows customers to pay for devices over a set time period.
Now that a federal judge has approved T-Mobile and Sprint’s planned merger, leasing could take over as the industry’s preferred model. Both companies have been very successful at attracting consumers with their more flexible terms over the past few years. T-Mobile and Sprint combined would command a postpaid market share to rival AT&T’s, which could push the current industry leaders to favor leasing over EIPs.
How Increased Participation in Equipment Installment Plans and Leases Could Play Out for the Industry
The popularity of leasing and EIP programs will continue to grow. Carriers like the marketing benefit of these plans and consumers like the lower costs and flexibility, all of which will work out well for resellers in the long run. The trade in volume that’s created by flexible leasing options will ultimately lead to more used iPhone and Samsung devices hitting the secondhand market. Looking at the leasing and payment options offered by the nation’s major carriers shows that consumers who don’t commit to a device are typically letting go of their devices anywhere from every 30 days to every 30 months, according to the terms of their lease or EIP agreement.