Is buying the new $1,100 iPhone in installments worth it?

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

CERTIFIED FINANCIAL PLANNER™ & former Managing Editor, Growth

Hanna Horvath is a CERTIFIED FINANCIAL PLANNER™ and former managing editor for growth at Policygenius. She helped produce the Easy Money newsletter. She passed her exam to become a CERTIFIED FINANCIAL PLANNER™ in November 2020.

Hanna's work has appeared in NBC News, Business Insider and Inc. Magazine. She is regularly quoted in top media outlets, including CNBC, Best Company and HerMoney. She has also appeared on the Money Moolala podcast and All's Fair podcast.

Prior to Policygenius, Hanna wrote for KNBC in Los Angeles and WNBC in New York. When she isn't writing, she's (often) running, (usually) cooking and (sometimes) doing photography.

Published September 14, 2018|4 min read

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Updated March 6, 2019: Apple announced their newest batch of smartphones and watches for 2019, and surprise, surprise, they're expensive. Among the new products is their priciest phone ever — the iPhone Xs Max, with a price tag of $1,099.

Though that number may make your jaw drop, you may not have to pay the full price upfront.

Apple and wireless carriers offer installment plans through Apple’s iPhone Upgrade Program. You make fixed monthly payments and after a year, you have the option to upgrade your phone. If you decide not to upgrade, you continue paying off the phone for another 12 months. (Here's how to protect your expensive phone.)

The cost of financing

A 64-GB iPhone Xs Max, the smallest of the new phones, would cost $54.08 per month. That monthly payment increases with storage size: $60.33/month for a 246-GB phone or $68.66/month for a 512-GB phone. The full price tag for these sizes is $1,099, $1,249 and $1,449, respectively.

When you do the math, the upgrade program costs more. The cheapest iPhone Xs Max costs nearly $1,300 after 24 months, almost $200 more than the original price.

Carriers like Verizon and AT&T offer their own payment programs for the iPhones. The drawback of these plans is you'll have to sign a long-term contract or pay interest, depending on your credit.

Why leasing costs more

All phones purchased with a payment plan come with AppleCare+, a warranty that protects your phone. Learn more about cell phone insurance here.

For those who like to upgrade their phone frequently but don’t have $1,000 to shell out upfront, this offer may be tempting. But it may not be the best idea to commit to spending money that you don’t have in that moment.

Mark Brinser, certified financial planner and owner of Stewardship Advisors, calls leasing a "terrible financial decision."

If you keep the phone the duration of Apple's payment program, you are essentially paying an interest rate of 9% for a product that provides "diminishing returns" over time, he said.

Brinser recommends using that $54 instead on building a rainy day fund or saving for a cheaper version.

"Let's be honest, who can really tell the difference in picture quality of the iPhone XS Max and the iPhone 7?" he said.

What's more, the terms of the lease require users to return the phone after two years in the condition they bought it - so if you come in for an upgrade with a cracked screen, expect to pay for the repairs in addition to the new phone. (This is when cell phone insurance comes into play. Here's if getting it is worth it or not.)

Peggy Doviak, a financial adviser and founder of D.M. Wealth Management, said users can also incure costs by not returning the phone. She said she was forced to pay a fee at the end of her lease.

"I keep all my electronics because the possibility of data remaining on it, even when I think it is 'wiped clean.'" she said. "Given the price of the iPhone, I hate to have consumers pay even more for it."

When leasing makes sense

Darin Shebesta, another certified financial planner who serves as vice president of Jackson/Roskelly Weath Advisors, said the payment program is a great idea for customers wanting to have the latest tech.

"There are really two different schools of thought," said Shebesta. "You have penny pinchers that say it's a rip-off. But we are doing so much on our phones today, so it's important to have the most updated technology."

Shebesta says as long as you build your monthly phone payment into your budget, you should consider using the program. He also adds that using the payment plan gets you access to the phone earlier than you normally would.

Brinser said the solution could be ditching the expensive phone and spending your hard-earned cash somewhere else.

"I hear all the time that people wish they could travel more, volunteer more, etc. but can't afford it," he said. "I would be willing to bet that after two years people will be much happier if they spent their money on something they really enjoy rather than a smartphone which would be considered obsolete in two years."

Customers can begin placing orders for the newest Apple products Friday. Items will be available in stores starting Sept. 21.

Important note: The upgrade plan, requires a credit check to qualify — your score can affect how much interest you'll pay.

Worried about your credit score making the cut? Check out a few ways to increase your score quickly.

Image: pixdeluxe