TIPS: Contract vs. Prepaid Phones. What is the difference?

Prepaid and contract phone plans are two common types of mobile phone service plans, and they have several key differences. 

Tips: It is higher recommend to have a pre-paid for the first month so you don’t have to rush to a decision to stay with a contract plan that is hard to get out.

Here is why

1. Payment Structure:

   • Prepaid: In a prepaid plan, you pay for your mobile service in advance. You purchase a specific amount of credit or data, and you use it until it runs out. When your balance is depleted, you need to top up or recharge your account to continue using the service.
   • Contract: With a contract plan, you sign a binding agreement with the mobile carrier for a specific duration, often 1 to 2 years. You pay a fixed monthly fee for the duration of the contract.

2. Flexibility:

   • Prepaid: Prepaid plans offer more flexibility because you are not tied to a long-term contract. You can switch carriers or plans more easily if you’re dissatisfied with the service.
   • Contract: Contract plans typically come with early termination fees if you want to cancel the contract before its expiration date. This can make it less flexible and more costly to switch carriers.

3. Credit Check:

   • Prepaid: Prepaid plans do not usually require a credit check since you pay in advance. They are accessible to individuals with varying credit histories.
   • Contract: Contract plans often require a credit check, and eligibility may be based on your credit score. A strong credit history may lead to better contract terms and lower upfront costs.

4. Device Subsidies:

   • Prepaid: Prepaid plans usually require you to purchase a phone outright at the full retail price, as carriers do not subsidize the cost of the device.
   • Contract: Contract plans often include the option to purchase a smartphone at a reduced price or even for free in exchange for committing to the contract. However, this can result in higher monthly service fees.

5. Monthly Costs:

   • Prepaid: Prepaid plans tend to have lower monthly costs because you only pay for what you use. There are no additional fees for device subsidies or long-term contracts.
   • Contract: Contract plans often have higher monthly fees to cover the cost of the subsidized device and the services provided.

6. Data and Usage Limits:

   • Prepaid: Prepaid plans may have limited data and talk/text allowances based on the package you choose. You can typically add more data as needed.
   • Contract: Contract plans may offer unlimited data and talk/text, depending on the plan. However, exceeding these limits can result in additional charges.

7. Upgrades:

   • Prepaid: Upgrading your phone on a prepaid plan typically involves purchasing a new device at full price.
   • Contract: Contract plans often allow you to upgrade your phone before the contract ends, sometimes at a reduced cost, as an incentive to renew your contract.