Skip the Contract: Buying the iPhone 6 Outright Is a Better Deal

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The scourge of the Old West was the flimflam man, who drove his horse and carriage from town to town and -- with his city-slicker clothes and fast-talking ways -- conned the poor unassuming townsfolk into parting with their hard-earned money for fantastic elixirs and magical amulets.

A case could be made that the major cell carriers have become modern versions of the flimflam man, using slick web interfaces and byzantine terms of service agreements in their quest to separate consumers from their cash. Point in case, the offer to "discount" the price of a new phone, in exchange for signing a two-year contract.

Let's say that you have decided to upgrade to the new 16GB Apple iPhone 6, with Verizon (VZ) as your carrier. That model retails for $649 without a contract but drops to $199 with the contract. This is referred to as subsidizing the cost of the phone, implying that Verizon is eating the extra cost in exchange for your continued business.

A flimflam man would call it "the hook." If you look deeper into the terms and do the math, it turns out the buying the phone outright -– at full retail price without a contract -– is the better move.

Let's Do the Math

First, understand that even if you buy the subsidized version at $199, you still pay sales tax on the full retail value of $649, so there is no advantage there. That means the savings between subsidized and outright purchase is $450. But it is in the contract where the number go south for the consumer.

With a subsidized phone and a two-year contract, the minimum you can pay for Verizon's recommended plan that allows unlimited talk and text and 2GB of data is $90 a month. However, owning your phone outright, you can get that same plan for a single user at $50 a month.

%VIRTUAL-pullquote-But does buying my iPhone 6 means I have to come up with the full price of the phone upfront? %That extra $40 a month times the 24-month length of the contract comes out to $960. Subtract the $450 savings from the subsidized phone, and you are paying $510 extra. And as a bonus, you have no contract obligation, which means you can change carriers anytime you want without paying a penalty, which can run up to $300.

But does buying my iPhone 6 means I have to come up with the full price of the phone upfront? No. Both Verizon and T-Mobile (TMUS) give you the option to finance your phone over the life of the contract at a 0 percent interest rate, with no money down.

In almost all cases, no matter what type of phone you want or what carrier you are with, purchasing the unsubsidized phone makes better financial sense because service plans have come down dramatically in price and -- due to competition -- will continue to do so. And you can find even deeper-discounted plans by going with off-brand names like Cricket, which use the same cellular network as AT&T (T).

The Lund Loop is a free once-weekly curated slice of what I am writing, reading and hearing about in finance, tech, music, pop culture, humor and the good life. But not sports or knitting ... ever!

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Skip the Contract: Buying the iPhone 6 Outright Is a Better Deal
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