Your phone is not Subsidized, its a Loan

Discussion in 'iPhone' started by ktmelvis, Sep 30, 2012.

  1. ktmelvis macrumors member

    Joined:
    Feb 13, 2012
    Location:
    The Enchanted Forest
    #1
    Your phone is not subsidized, you borrowed money from the carrier, look up the meaning of subsidy, its a little different from what the carriers are telling you.
    So what is your first clue of a loan, the answer is, your locked in for time with a plan that includes a minimum payment, say $60 for the iPhone, voice and data, the problem here is that no one has issued an interest rate, does your monthly phone bill include how much of the phone has been paid of, most likely NOT, so why do the carriers do it, its because they can, there are no shortage of people willing to sign up for this, as long as people have the phone their happy, BUT, how much it this really costing you??.

    When you plop down $199 for an iPhone 5 16 gig, you owe the carrier $500 ETF period, you see, where did the subsidy go?, plus early cancelation fees depending on if or when you cancel.
    Cell phone contracts have hurt many young users because it their first form of credit, DONT BLOW IT, make sure you can afford it and pay the bill, or make sure you can afford it, when young people get a few years older (and they all do), where they need a car, apartment, or credit card, and they get turned down buy the credit issuer, its not because of a subsidized phone, it because you borrowed money from the carrier and had payment problems, creditors don't care what the carriers called it, to them it was a loan.
    Young people please take notice because the carriers will report you to credit reporting agencies at the drop of a hat.
    If you have the money, but the phone outright, there are benefits from many carriers, such as cheaper rates and changing plans when you please.
     
  2. nostresshere macrumors 68030

    Joined:
    Dec 30, 2010
    #2
    loan, bribe, subsidy, extortion, deal of the month.

    It really does not matter what you call it.

    I currently pay around $60 a month for service (on family plan, averaged out). I intend to continue doing so for a few years to come. That charge is the same if I use my old iphone, or a new one.


    I want a new phone. ATT says they will give me a $650 iphone if I promise to stay with them for 2 years and give them $199 upfront.

    Call it what you want, but I am willing to give them basically $10 a month for the new phone - upfront.
     
  3. Blorzoga macrumors 68030

    Blorzoga

    Joined:
    May 21, 2010
    #3
    If its a loan, then why does the service cost the same if you own the phone outright? Once you're finished paying off this "loan", why does your payment not go down? There is not an Early Termination Fee (ETF) PLUS an early cancellation fee, they're one and the same.
     
  4. dontworry macrumors 6502

    dontworry

    Joined:
    Mar 18, 2010
    #4
    Exactly right. I am off contract trying to decide if I should renew to get a new phone or go prepay with the iP4. My bill didn't go down when I was eligible for an upgrade. The subsidy is a way to entice you into signing another contract (guaranteed money)
     
  5. jlake02 macrumors 68020

    jlake02

    Joined:
    Nov 2, 2008
    Location:
    L.A.
    #5
    It's not a loan. They're buying your "loyalty" for a period of time. This makes sure they can recoup the subsidy. Locking people into their data plans helps them make money.

    It's a win/win in my book (assuming you're happy with your carrier for the full 2 years).
     
  6. ktmelvis thread starter macrumors member

    Joined:
    Feb 13, 2012
    Location:
    The Enchanted Forest
    #6

    It depends on your carrier, my carrier dropped my rate, maybe not yours, but all carriers are not the same depending where you are, once we had new competition show up, things changed, not because they wanted too, they had too.
     
  7. capn'hindsight macrumors newbie

    Joined:
    Sep 22, 2012
    #7
    I don't think you have to spend $60 a month for the iphone. I added an iphone 5 with $30 a month as an extra line to my family plan
     
  8. boomhower macrumors 68000

    boomhower

    Joined:
    Oct 21, 2011
    #8
    It's not a loan. Where are the legally required payment terms and interest rate? Why doesn't the payment go down once the "loan" is repayed? The ETF is in place to recover the subsidy if you decide to leave early. How do you figure $500, it's $350 at most carriers.

    At least this is true for US carriers. Now across the pond the way the cell phone industry is set-up is completely different. But since your from the enchanted forest maybe they do give you a loan.

    You have a bit confusing idea of what a loan is.
     
  9. Ahonen macrumors 6502

    Ahonen

    Joined:
    Aug 15, 2012
    #9
    It's an incentive for a continued contract for service. The ETF is a fee for breaking that contract. At least that is how I have always seen it.
     
  10. Moshe1010 macrumors 6502a

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    Jun 27, 2010
  11. Daveoc64 macrumors 601

    Joined:
    Jan 16, 2008
    Location:
    Bristol, UK
    #11
    Legally, it's not a loan.

    End of.
     
  12. BlueKhufu macrumors regular

    Joined:
    Nov 27, 2010
    #12
    A grant or gift.

    So an apartment lease is a loan because you're obligated to the terms for a set period? Or choosing a cheaper power company that gives a better rate if you lock in for a year? That's not what a loan is. My minimum payment is for the service, not equipment rental or loan repayment.

    I've saved $2500 on iPhone subsidies alone. I pay the same monthly whether I'm under contract or not.

    I'm going to assume you're not in the US because I don't owe the carrier the ETF if I fulfill my contract, and you seem to indicate there are additional cancellation fees on top of this ETF.

    They don't care if its even a loan. It's an unfulfilled obligation and an unpaid balance if you leave early. If you're not on contract, run up a bill and dont pay it. They'll still report you irregardless of whether there is a subsidy or contract.

    I save a LOT of money by not buying outright. Your advice - while I'm sure well intentioned - could end up costing the very people you're trying to advise more money that might be hard to come by. I'll agree people need to understand the actual costs of any service.
     
  13. Jamesesesesess macrumors 6502a

    Joined:
    Nov 26, 2011
    #13
    I pay AT&T $200 a month whether I use my upgrade or spend $450 extra for no practical reason (for me). No difference. It's not a loan, AT&T is making their money either way.
     
  14. BlueKhufu macrumors regular

    Joined:
    Nov 27, 2010
    #14
    Woah. My reply looked fugly formatted like that.. My apologies. :)
     
  15. Mr Hill macrumors 6502

    Joined:
    Apr 28, 2012
    Location:
    Charlotte, NC
    #15
    In the States the only carrier that drops your rate after you pay for the phone or buy one outright is T-Mobile. It's not the norm here to get a discount for having your own phone.
     
  16. Geckotek macrumors G3

    Geckotek

    Joined:
    Jul 22, 2008
    Location:
    NYC
    #16
    There are so many things wrong with this, I just don't know where to start....

    I'll just say...NO, it's not a loan. It does not meet any of the criteria of a loan.
     
  17. Megalobyte macrumors 6502a

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  18. kdarling macrumors demi-god

    kdarling

    Joined:
    Jun 9, 2007
    Location:
    Cabin by a lake
    #18
    A subsidy has many of the earmarks of a regular loan:

    1) The customer is locked into a contract until they pay back the carrier either over the full contract, or via the ETF pay off (which goes down monthly).

    2) The carrier pays the phone maker the full price immediately, while the user only pays an upfront payment. The carrier is taking the risk. That's the same as a car loan from the bank with a down payment.

    It takes an average of 20 months before the carrier gets the money back from the monthly fees collected from each customer.

    The primary difference is that after the phone is paid off, the monthly contract fee does not go down. Which means either the carrier is now making extra money, or that the carrier has factored the likelihood of a certain percentage doing this as part of the overall payback process, or a combination.
     
  19. Randyrat macrumors member

    Joined:
    Feb 20, 2011
    #19
    It's not a loan, but if the point he is trying to get across is that your credit could be impacted by signing and fulfilling a contract through a carrier, he has a good lesson to give to younger people.
    If you feel you cannot commit to a monthly payment plan with your iPhone, some people may benefit from buying an unsubsidized device, not that this would save you money in the long run, if you end up using and paying every month for two years anyhow.
    My personal opinion is that if you feel you can't commit to paying a cell phone bill with an expensive data plan, you probably shouldn't be buying a $700 phone in the first place.
    Alas, I try not to tell others what to do with their money.
     
  20. famoussasjohn macrumors 6502a

    famoussasjohn

    Joined:
    Jul 7, 2010
    #20
    Not sure how it can be a loan, last time I checked, I paid for the phone before hand, regardless of how much I paid. It's not a car payment. I can cancel the service whenever I want and the phone is still mine. Sure there will be penalties, but that goes away after one payment.
     
  21. kdarling, Sep 30, 2012
    Last edited: Sep 30, 2012

    kdarling macrumors demi-god

    kdarling

    Joined:
    Jun 9, 2007
    Location:
    Cabin by a lake
    #21
    No, you didn't fully pay for the phone. The carrier did. You'll be paying back the carrier over time or with an ETF.

    Paying the ETF for a phone, is no different than canceling a car loan by giving the bank the remainder that you owe in one payment. Both are repaying the loan.

    The math is simple:

    I sign a contract for an iPhone for 2 years. The carrier pays Apple ~$600 for the phone. I pay the carrier: $200 up front, plus a $30 upgrade / activation fee, plus even if I cancel after only two weeks (I'd have to give the phone back before then!), I'll still have paid at least $20+ in monthly fees.

    $200+30+20 = $250 up front.

    That means I owe the carrier $600 - $250 = $350 payoff. That's what the ETF covers if I cancel right away. The ETF goes down each month, because I'm paying back the carrier from within the service fees.

    --

    Phone companies would be out of business very quickly if they didn't get back what they paid for each phone. High phone prices are already killing them. For example, AT&T took a stock price hit the first time it was revealed that they had more than a half billion dollars tied up in iPhone subsidies (customer loans). Apple's prices are a major reason why carriers are pushing non-Apple phones, or in some countries have even stopped subsidizing iPhones.
     
  22. ixodes macrumors 601

    ixodes

    Joined:
    Jan 11, 2012
    Location:
    Pacific Coast, USA
    #22
    The carriers subsidy facilitates the sale of a staggering number of iPhones.

    I for one understand finance, read every contract I sign, and simply enjoy the results of the transaction I just completed.

    It's as simple as that :)
     
  23. dilutedq macrumors regular

    Joined:
    Jun 22, 2010
    #23
    Math is hard, seeing as I would be paying the same amount with an unlocked phone, all this is, is a promise that I will stick with AT&T for 2 years. I'm not paying back the phone, because I'd be paying the same bill every month regardless.
     
  24. tdar, Sep 30, 2012
    Last edited: Sep 30, 2012

    tdar macrumors 6502a

    Joined:
    Jun 23, 2003
    Location:
    On the Space Coast
    #24
    While it is not fully a loan (even though it has many components of a loan) today, I predict that over time carriers will move to a system that takes on the feel of a lease. You make a down payment (capital cost reduction), make a monthly payment of $20 or so that is part of your monthly cost and after some number of months you return the phone (and pay the down payment again) and walk out with a new phone. This will be spun as a great plan for you, but it will really be a way to lower carriers costs.
     
  25. kdarling macrumors demi-god

    kdarling

    Joined:
    Jun 9, 2007
    Location:
    Cabin by a lake
    #25
    Correct, if a customer doesn't use the subsidy on a contract that would otherwise still cost the same, then the carrier is making extra money off that customer.

    That's why it almost always makes sense to use the subsidy if you plan to stick with a carrier, at least in the US. Otherwise it's like throwing away up to $200 a year in kickbacks, for no good reason whatsoever.

    It's smarter to get a subsidized phone every two years and even just sell it to someone else for a profit if you don't want it for yourself. Use the profit towards lowering your monthly payments, or use some of the money towards a used phone.
     

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