Comparing iPhone Purchase Plan Options

With the roll-out of the iPhone 6S and Apple's introduction of their iPhone Upgrade Program, there has been some confusion about what the iPhone Upgrade Program really means, and what the best way to buy an iPhone really is. Here, I attempt to clarify the former, and crunch the numbers on the latter.

iPhone Upgrade Program

Apple's iPhone Upgrade Program is for people who want to get the newest iPhone every year, at a predictable cost. You pay $32/month ($384/year) for the latest iPhone base model (or $37-45/month for upgraded models), which includes AppleCare+, and every year you can upgrade to the latest, greatest iPhone.

The thing that is confusing a lot of people is that this is technically a 24 month contract. But it has a "give back the phone and start over" option that kicks in at 12 months. After paying on your phone for a year, you have the choice of keeping your old phone, completing the 2 year contract, and then owning it, or giving back the phone, getting a brand new one, and starting over with a new phone and a new 24 month contact.

So if you buy an iPhone 6S today, you'd pay $384 over the next 12 months. Then, if you're not impressed with anything in the iPhone 7, you could keep your 6S, pay another $384 over the next 12 months, and then own your 6S outright by the time the 7S comes out. Or, after that first 12 months, you can give your iPhone 6S back, get an iPhone 7, and start a new 24 month contact, leaving you with the same "keep it or trade it in" decision when the 7S comes out.

This is very similar to how many of the carrier payment plans (like AT&T Next) work, except that carrier plans can be spread out over 20, 24, or 30 months, with varying upgrade timelines. The main value difference between Apple's plan and the carrier plans is that Apple's comes with AppleCare+ included in the price.

Total Cost / Benefit Of Different Buying Options

When we consider what the "best" way to buy a phone is, we're really looking at the total cost of ownership of the phone, balanced against the total benefit we get from the phone. The benefit we each get from always having the latest phone versus a slightly older phone is hard to quantify, and will likely change year to year based on what new features are introduced. But it's pretty easy to quantify the cost of ownership, so we'll start there. And once we know the cost of ownership difference, it should make the yearly decision of whether or not to upgrade much simpler.

Total cost of ownership of an iPhone (or anything else) includes the total amount you've paid to own it, minus the amount you can sell it for when you're done owning it. The table below shows the total yearly cost of ownership, averaged over a 4 year period, for each of the different buying options, three trade-in frequencies, and for each type of iPhone (entry-level 16GB, mid-level 64GB, and upper-level 128GB). Note that there are two versions of "Buy Cash," the first assuming you sell the phone for full market value, the second assuming you sell it to Gazelle or another convenient buy-back option for less than full market value.

Scroll to the end of the post if you want to see how I did the math.

TLDR Summary

  • If you plan to upgrade every year OR plan to get AppleCare+, Apple's iPhone Upgrade Program is the best way to go.

  • If you plan to upgrade every other year, and aren't interested in AppleCare+, you save about $60/year over Apple's plan by going with a 2-year payment plan from AT&T or Verizon (or ~$30/year savings if you upgrade every 4 years). This is probably where most people fall.

  • Buying cash only makes sense if you plan to upgrade every year, or plan to always stay a model or two behind. But even then, it's the highest-hassle option, and any savings can quickly disappear if you don't get a good price when selling your used phones.

  • Subsidized plans are a horrible idea. Almost no one should use them.

Which iPhone Should You Purchase?

Obviously, most of the decision on which specific model you want to buy will be dependent upon how you use your phone, what size screen you like, and which colors you prefer. But looking at the data here should give you a much better idea of how much extra per year you'd actually be paying for different memory options. Even though the purchase price of the phone is a $100 difference between each memory level, after accounting for resale value and how often you upgrade, the per-year average is actually much smaller.

Upgrading from 16GB to 64GB is a pretty consistent ~$50/year cost if you upgrade every year, ~$38 if you upgrade every other year, or ~$19 if you upgrade every 4 years. Upgrading from 64GB to 128GB is a about the same price difference for a slightly larger data increase, but only useful to a smaller set of users. Considering the pain of running out of room and having to delete things if you take a lot of photos or use a lot of apps, the upgrade to 64GB will probably make a lot of sense for most people. The folks for whom the 128GB upgrade makes sense probably already know who they are.

Which iPhone Payment Plan Should You Use?

To help you make sense of all the numbers in the table, I'll summarize how each of the payment options works, and who which one is most likely to be the best option for which kinds of users.

  • Cash Upfront
    The most straight-forward way to buy an iPhone is to pay the full cost of the phone every time you buy one. No carrier subsidies, no payment plans, just plop the whole $650-850 on a credit card and it's yours to do with as you please. If you don't upgrade every year, this ends up costing the same as most of the carrier payment plans. It can also be the least expensive yearly cost of ownership option, with two significant caveats.

    Obviously, the first caveat is that you need to be financially well-off enough that you can devote that much money toward a phone purchase, not only when you initially buy the phone, but also every time you upgrade, as you'll need to buy your new phone and transfer your data before you can turn around and resell the old phone to recoup part of the cost.

    The second caveat is that the cost savings from this method is dependent upon getting a fair market value each time you resell your old phone to upgrade to the new one. If you're an ace at selling used phones on Craigslist or eBay, this option can save you quite a bit over most of the other options. But if you rely on buy-back programs like the ones provided by the carriers, or on sites like, at far below market value, this actually becomes the most expensive option.

    Who should buy this way?
    If you plan to upgrade every year, you don't plan to get AppleCare+, you're good at reselling your old phones, don't mind that extra hassle, and you have enough of a financial cushion to afford the buy-in price, this can be the cheapest way to buy your iPhones. If any of the above don't apply to you, this option probably isn't worth the hassle.

  • Subsidized Carrier Plan
    While most people couldn't tell you what a "subsidized carrier plan" is, this is actually how most of us have bought our iPhones in the past. The carriers give us an unnaturally low price on the phone, lock us into a 2-year contract, and inflate our monthly bill enough to make back the difference over time. For AT&T, the difference between a subsidized and unsubsidized plan is $25/month. So your $200 subsidized iPhone actually costs you $800 over the two years of your contract, significantly higher than the $650 it would have cost you to buy it unsubsidized.

    Even worse, most carriers don't even drop your phone bill back to its normal level, even after your 2 year contact ends. So if you think you're saving money by keeping your $200 subsidized phone for 4 years, you may be woefully mistaken.

    Who should buy this way?
    This is the most expensive way to buy an iPhone. It is also the least flexible, as you're stuck in a 2-year contract without the option to upgrade if a really amazing new phone hits the market while you're in the middle of a contact. Almost no one should buy their phone this way.

    Fortunately, most of the major carriers are starting to phase out subsidized phone plans, in favor of payment plans. (More on those next.) What I haven't been able to determine yet is why carriers don't seem to like the confusing subsidized plans that appear to be cheaper to those not in the know, but end up making them more money in the long run. If anyone knows, I'd love to understand their thinking better.

  • Carrier Payment Plan
    Carriers are moving away from subsidized plans, but they still want to provide a low cost way for people to buy in to a new iPhone. So most of them are offering payment plans, where you don't pay anything up front to purchase the phone, but instead pay the full purchase price in installments over 20-30 months. This gets you most of the benefits of the buy-it-cash method, but with lower up-front cost. But there are catches.

    Verizon's plan breaks the cost of the phone into 24 equal payments. This makes it very similar to the Apple plan, but without the AppleCare+. However, Verizon does not offer the ability to upgrade mid-contract (yet), so there is no option for upgrading every year. (Note: I left the calculation for a 12-month upgrade in the chart just as a benchmark against Apple's plan, should Verizon eventually add this feature.)

    The AT&T Next payment plan gets a little trickier. It does offer a 12 month upgrade option, but it breaks the cost of the phone into 20 payments rather than 24. This means you're paying 60% of the cost of the phone in the first year and the remaining 40% the second year. That doesn't make a difference if you're upgrading every other year, but it means you're paying an extra 10% of the purchase price of the phone every year if you're upgrading ever year. This eliminates most of the savings yearly upgraders would otherwise get over the Apple plan.

    If you rely on lower-than-market-value buy-back options for selling your old phones, you do run the risk of carrier plans being a bit more expensive than what is shown in the table (which assumes selling it for market value). If you upgrade every year, you never have a phone to sell, so it's really only every other year (or longer) upgraders that this would be an issue for. This usually comes down to a difference of about $100 in sale price if you're upgrading every other year, or $50 if it's every 4 years (or an annual average difference of $50 or $12). So, seller beware.

    Who should buy this way?
    If you plan to upgrade every year, Verizon won't let you and AT&T's plan is only ~$20 less per year than Apple's plan, without the $130/year added value of AppleCare+. If you plan to upgrade every other year (or less often), and you don't plan to buy AppleCare+, a payment plan from AT&T or Verizon will save you ~$60/year over Apple's plan.

    Note 1: Sprint & T-Mobile: I wasn't able to find reliable data on Sprint or T-Mobile's payment plans. If you get decent service form them in your area, you may want to crunch those numbers for yourself and see how they stack up. You can download my spreadsheet at the bottom of the post, to get you started.

    Note 2: AT&T Unlimited: If you have an AT&T account that is grandfathered into unlimited data, and you use your phone even moderately, it's a really, really bad idea to sign up for ANY plan that will move you off of unlimited. If you have one of these plans, always buy your phone from an AT&T-owned AT&T store, NEVER from an AT&T Authorized Reseller. I've known WAY too many people who were straight up lied to by them, and they will often boot your off of Unlimited even if there was a way you could have stayed on it. Go to a real AT&T store and make double and triple sure that whatever payment plan you choose will not interfere with your unlimited account.

    Note 3: For Bargain Shoppers: A few people pointed out that they do like to upgrade every year, but not to the newest model. Instead, they buy a 1-year old iPhone used every year, and sell their 2-year old used one to offset the cost. If you're good at selling used phones for fair market value, this comes out to about $200/year, definitely lower than any other option. If you rely on below-market-value trade-in options, it climbs to ~$300/year, more expensive than the carrier contracts that give you a brand new one every other year.

  • Apple Payment Plan
    Apple's new iPhone Upgrade Plan is very similar to the payment plans provided by the carriers, but without the hidden tricks. The main differences are the simplicity of Apple's plan, and that AppleCare+ is included in the price.

    AppleCare+ normally costs an additional $130 each time you buy a new phone, so this can be a pretty significant savings if you upgrade every year, or a modest savings if you upgrade less often. Apple's plan is also much simpler than the carrier plans, which is a plus all on its own.

    Who should buy this way?
    If you plan to upgrade every year, or if you plan to buy AppleCare+ for your phone, Apple's iPhone Upgrade Plan is currently the best way to go. It gives you the best value for your dollar, as well as the simplest plan.

I hope this helps clarify things and give you a better idea of which option might be best for you.

For those who want to see how I did my math, and potentially help me spot any errors I might have made, feel free to keep reading...

For simplicity, we're going to assume that iPhone prices and relative resale values will stay pretty much the same as they are now over the next 4 years, and calculate the total cost of ownership for different purchase methods.

For our input variables, we will assume the following costs and resale values. The costs are based on my best understanding of what the current costs are for the entry-level (lowest GB), mid-level, and upper-level (highest GB). Note that the costs do NOT include the portion of your cell phone bill that remains constant; it only includes any differences impacted by your phone or contract choices.

Newest iPhone (Entry-Level Model, aka 16 GB):
- Cost for Apple Payment Plan: $32/month for 24 months ($385/year)
- Cost for AT&T Next Payment Plan: $32/month for 20 months ($390 1st year, $260 2nd year)
- Cost for Verizon Payment Plan: $27/month for 24 months ($325/year)
- Cost for Subsidized Carrier Plan: $200, plus service charge is $25/month higher than usual ($300/year)
- Cost to Buy Cash: $650
- Resale value for 1 Year Old: $400 (fair marker value), $300 (sell to Gazelle)
- Resale value for 2 Year Old: $225 (fair marker value), $140 (sell to Gazelle)
- Resale value for 3 Year Old: $150 (fair marker value), $85 (sell to Gazelle)
- Resale value for 4 Year Old: $75 (fair marker value), $25 (sell to Gazelle)

Newest iPhone (Mid-Level Model):
- Cost for Apple Payment Plan: $36/month for 24 months ($435/year)
- Cost for AT&T Next Payment Plan: $37/month for 20 months ($450 1st year, $300 2nd year)
- Cost for Verizon Payment Plan: $31/month for 24 months ($375/year)
- Cost for Subsidized Carrier Plan: $300, plus service charge is $25/month higher than usual ($300/year)
- Cost to Buy Cash: $750
- Resale value for 1 Year Old: $450 (fair marker value), $305 (sell to Gazelle)
- Resale value for 2 Year Old: $250 (fair marker value), $145 (sell to Gazelle)
- Resale value for 3 Year Old: $175 (fair marker value), $90 (sell to Gazelle)
- Resale value for 4 Year Old: $100 (fair marker value), $30 (sell to Gazelle)

Newest iPhone (Upper-Level Model):
- Cost for Apple Payment Plan: $41/month for 24 months ($490/year)
- Cost for AT&T Next Payment Plan: $42/month for 20 months ($510 1st year, $340 2nd year)
- Cost for Verizon Payment Plan: $35/month for 24 months ($420/year)
- Cost for Subsidized Carrier Plan: $400, plus service charge is $25/month higher than usual ($300/year)
- Cost to Buy Cash: $850
- Resale value for 1 Year Old: $500 (fair marker value), $310 (sell to Gazelle)
- Resale value for 2 Year Old: $300 (fair marker value), $150 (sell to Gazelle)
- Resale value for 3 Year Old: $200 (fair marker value), $95 (sell to Gazelle)
- Resale value for 4 Year Old: $125 (fair marker value), $40 (sell to Gazelle)

For the iPhone Upgrade Program and Carrier Plans, I initially assumed a 24 month upgrade plan with a 12 month upgrade option, similar to Apple. Turns out Verizon doesn't have a mid-contract upgrade option yet, and AT&T does a 20 month plan with a 12 month upgrade, which shifts more of the payments to before the 12 month mark, making it the same for people who upgrade every 2 years, but more expensive for people who upgrade yearly. For the yearly upgraders, there's also an 8-month liability at the end of the final year, as well as owning a phone to sell. For the other two plans, there is no liability at the end, but you still have an older phone to sell.

For Subsidized Carrier Contracts, there isn't a yearly option. You end up paying the hiked-up monthly bill rate all 4 years in both models, since carriers don't usually switch you back when you pay off your phone. If you upgrade every other year, you end up buying a phone twice and selling a phone twice in 4 years. If you keep the phone the whole time, it's one buy and one sell.

For Buy Cash, you buy and sell a phone each time you upgrade. There are separate calculations for whether you're getting a fair market price or selling phones below market value for convenience.

Numbers Spreadsheet Calculations:
- 4-Year Cost of Ownership: Entry-Level iPhone
- 4-Year Cost of Ownership: Mid-Level iPhone
- 4-Year Cost of Ownership: Upper-Level iPhone
- Numbers Spreadsheet


  1. I have a 28% off my att phone plan and I have two lines…my wife and my own. we have unlimited data and I always upgrade yearly either one of the lines and my wife gets my 2 year old phone. She does not mind and I always get the new phone because it’s what I like. we pay $140 a month for basically unlimited everything as we have more minutes rolled over than we could ever use.

    This years scenario she gets my iphone 6 64gb i get the iphone 6s+ 64gb this time and we sell her current iphone 5s for right around $200 is what we have always received. this year getting the plus and going 64gb I wont break even but we have broken even upgrading yearly each year. Let me know if you see my situation differently or if It could be improved on.

    • Hi Jose,

      You know, I almost added a bit on hand-me down options, but the chart was already getting out of control and I’d already spent 4 days tweaking the numbers, so I skipped it.

      Here’s what I think would change in a setup like yours. (Not counting the 28% discount. That’s awesome for you, but not applicable to everyone, so I’ll let you mentally add that to what’s below, so it’s still useful for other readers.)

      You’re basically on the every-year cash plan, with a few notable exceptions. You’re still buying a $750 phone every year, but instead of selling a 1-year-old phone every year for $450, you’re selling a 2-year-old phone for $250 (at least based on my used price estimates). This brings the average yearly cost up from $300 to $500, BUT since you’re spreading it between two people, that’s actually $250/year each, or a savings of $100/year versus both of you upgrading every year.

      Just for fun, let’s assume you had a phone-aged kid, and your wife passed her 2-year old phone on to them each year, and you sold the kid’s 3-year old one. You’d still be paying $750/year, getting only $175 back for the used one, and then splitting it three ways, for an annual average of $192 per person.

      Add a second kid getting their older sibling’s hand-me down, and you’d be spending $750, getting $100 back for a 4-year old phone, and splitting it four ways, for an annual average of $163 per person.

      This is all basically to say that you can save a lot of money by going the hand-me-down route within a family. But it doesn’t really address the question of which payment plan is best, since this can work equally well with cash or a carrier payment plan. It mainly just rules out Apple’s plan as an option if you want to do hand-me-downs on a yearly basis.

      Note: If the “breaking even” bit means you’re buying the new phones on a subsidized plan at $300 for 64GB, you’re not really breaking even. You’re still paying $25/month above what you would be paying on a non-subsidized plan. Depending on whether or not they’re applying that inflated rate to both of your lines (I wouldn’t put it past them), you may be paying more than you would if you were buying cash or on a payment plan each year. I’d recommend double checking with a rep when you order your S6.

    • Used prices are a hard thing to pin down. You’re right that there are a bunch selling for $600 on eBay right now. Many factory unlocked, but some locked or carrier unlocked. But I’m not sure that’s actually representative on average. I’ll try to explain why.

      First, it might help to outline how I arrived at my estimates. I started with the mid-point between what Gazelle buys at and sells at for each model, then reality-checked that against current SF Bay Area Craigslist listings. For the mid-level model, the mid-point was $425 and I adjusted it up to $450.

      If we assume the eBay price of $600 for a used 1-year old mid-level phone is consistent, then take away the 10% eBay fees and 3% PayPal fees, that would be about $525 in actual profit from the sale, or ad additional $75 for each sell/buy cycle. That would indeed make yearly cash upgrades a big winner (and possibly cheaper than the cash every-other-year option).

      But I don’t think the $600 price is likely to remain there for long. Right now, the new phones haven’t come out yet, so there’s a relatively low supply of 1-year-old phones, as most people want to get the new phone in hand and transfer their date before selling their old phone. Once the 6S starts landing in people’s hands, we’re very likely to see a spike in supply, and thus a decrease in price.

      Another indicator that the $600 price is likely a temporary spike is the fact that anyone who wants to can buy a 64GB iPhone 6 for $550 from Gazelle, with a better guarantee on condition. Gazelle probably knows better than most what a decent market price is for iPhones, since it’s pretty much what their business is based on. So I can’t imagine them intentionally selling them for less than fair market value.

      If we assume that Gazelle’s price is closer to the post-ship eBay price, that would be $475 after fees, or only slightly higher than my $450 estimate. We won’t know for sure unless we check used prices again in about 2 weeks, continue tracking them for the next 1-2 months (when most people do their upgrades), and find an average for that time window. And then average them in with the same period data from Craigslist. (And, of course, eBay prices will always need to have 13% deducted to get the actual profit, whereas Craigslist prices are fee-free.)

      Ultimately, though, the exact used price on a 1-year-old model doesn’t have too much of an impact on the TLDR summary guidelines. Cash still only makes the most sense if you’re upgrading every year and don’t mind the hassle of having to resell the used phone every year. And cash can easily be the cheapest option by far or the most expensive option, depending on how good a price you get when you sell your old phone.

  2. “Cost for Subsidized Carrier Plan: $300, plus service charge is $25/month higher than usual ($300/year)”

    I keep seeing mention of this $25/month fee, which I assume helps AT&T recoup their subsidy costs. I have a subsidized phone, my son moved to AT&T Next a while back – but I don’t see a $25 difference in our bills anywhere. Is it being hidden in another line item somewhere, or does he have to specifically ask for it (or is it not available for grandfathered unlimited data plans, which both he and I have)?

    • AT&T essentially has it baked into all the old subsidized plans, and spins the difference as a “discount” for going with the AT&T Next option. If you go with their “Mobile Share” plan, they represent the difference as an “access fee.”

      More than likely, if you switched away from your grandfathered plan to one of the current plans you’d get that $25/month discount for Next. But then you’d lose your unlimited data. Which would probably not be a good deal, in the end.

      • so he’s not getting the “discount” because he stayed with his unlimited plan? that suxxors – he’s still paying for a subsidization that he’s not using :(

        • I’m honestly not sure. The grandfathered unlimited accounts are in their own wacky world of perpetual stasis, so it’s hard to understand how they’re actually being handled without talked to several different AT&T reps and seeing which ones say different things.

          My wife is on one of those plans. It’s a nightmare dealing with AT&T every time she needs to upgrade.

  3. to throw another wrinkle in the story, AT&T’s website now includes this gem: “For Mobile Share Value Plan customers, the $15/$25 discounts are not available with an upgrade to a new 2-year wireless agreement.”

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