How do no-contract phone plans work?
No contract, no problems ... right?
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You may only see television ads for the same four mobile carriers, but as the number of smartphone users continues to rise, so does the demand for flexible phone plans. I was born in the early 90s, which means I have almost no brand loyalty. Show me a snazzy new phone plan that offers a lower price and better deal than my current one and I’ll happily jump ship.
And it turns out I’m not alone—nearly 10% of households plan to switch phone plans in 2020, a market cell phone plan carriers aim to capture by offering more flexible options, unlimited data, stipends for switching, and no-contract phone plans.
So how do no-contract phone plans and services work? If they’re cheaper than traditional plans from big carriers and offer similar packages, why doesn’t everyone have one?
What is a no-contract phone plan?
A no-contract phone plan is exactly what it sounds like: a cell phone plan that doesn’t require the user to commit to the brand for several years or beyond month-to-month. Companies are offering plans that ditch more traditional two-year commitments in favor of prepaid or monthly plans, allowing you to opt out without the headache of paying an additional fee you may accrue when breaking a contract.
Big-name carriers are hopping on the no-contract bandwagon, offering many of the benefits of a traditional phone plan at a fraction of the cost. One new service is from a Verizon-owned company called "Visible", which is offering unlimited data and no contract for $40/mo. There are many smaller providers that offer similar or cheaper plans, though these range from carrier-like services such as Visible to third-party MVNOs that pre-purchase network access for their customers to use.
Prepaid phones—like those you can purchase for $30 at Best Buy—fall under the no-contract umbrella, but require you to pay as you go, meaning you’re paying for every text and minute you talk. Generally, carriers require you to purchase refill cards or points to put toward your account, allowing you to use data, texts, and minutes. With a no-contract phone plan, you get the same flexibility as a prepaid phone (and some restrictions on usage, depending on the plan), but you just need to worry about one set bill each month.
What features can you get with no-contract phone plans?
As you can imagine, it depends on the plan. Many no-contract plans stay competitive with traditional two-year plans, but have a few areas where they can distinguish themselves.
- Data: Most two-year contracts offer unlimited talk, text, and data as part of their baseline packages. But when it comes to no-contract plans, few offer unlimited data as part of the deal (with Visible being an exception). Most cap data around 5–10GB—for most people, this is fine; if you use your phone for texting, Web surfing, emailing, and social media, you likely don’t need unlimited data to get the most from your plan. Figure out how to choose the best data plan for your budget by determining how much data you use each month. You can access the amount of data you use in your phone’s settings, or find an online data calculator that can estimate your data usage.
- No hidden fees: When you sign up for a two-year agreement that advertises itself at $50 a month, you may find that your bill is closer to $80 a month. Your phone bill, just like your cable or Internet bill, may have other charges baked in that inflate the price, such as smartphone fees, taxes, and—my personal favorite—“other charges.” No-contract plans build those fees into the initial offer, so if they’re advertising at $40 a month, you’ll likely just pay that.
- No credit check: Prepaid and no-contract plans usually don’t require credit checks, while more conventional phone plans do. Essentially, since you’re paying for services before they’re rendered, prepaid plans eliminate the credit requirement, making this an appealing option for those who don’t have the best scores.
- Bring your own device: Some no-contract plans require you to purchase a special phone directly from them, while others let you bring your own device, saving you a ton of money and the hassle of transferring your apps and data. Even if you're getting a no-contract plan from a company that isn't one of the "Big Four," you'll still be using their networks, so if you're bringing a device you just need to make sure it's compatible.
- Full coverage: Review your plan’s specifications before committing, but since most of the no-contract plans are operated by the big four retailers—or smaller companies that are owned by the big four—you should have access to the full coverage of the parent networks.
Is a no-contract plan right for me?
It depends on what you need from a phone plan. Opting for a solid two-year agreement is a great way to lock in a price and ensure you get the full suite of benefits offered by your provider.
Plus, cell phone carriers are starting to expand their offerings to make their plans seem more appealing than both their competitors’ and no-contract alternatives. For example, some carriers are partnering with Hulu, Netflix, Amazon Prime, and even HBO to provide users free access to popular streaming services as part of their plans.
Major phone plan providers also have the market for family plans—if you’ve got 3–5 people on one plan, bundling them all on a two-year contract plan may be the better call if you don’t want to pay for five individual lines.
But for a single person looking to save, a no-contract plan may be a cost-effective move. If you game on your phone or enjoy streaming music and videos, you’ll need to pick a no-contract plan with unlimited data—but be sure to read the fine print; some plans may start throttling (or slowing down) the network once you’ve hit a certain amount of data each month. Others won't throttle your data, but they may de-prioritize your data once you've gone over a certain cap or if the network is congested.
Either way, no-contract plans have a lot of benefits. They are usually more affordable than a single line from the bigger carriers, but they still have access to the same networks. Though some of these plans restrict which devices you can use, others are much more liberal (as long as your phone has the required GSM or CDMA radios to talk to that network). You’ll need to do a little more homework, but in the long run these plans can save you a ton of money and hassle.