Think twice before you finance your new iPhone 7

Is Apple's financing option the best way to buy the new iPhone? MagnifyMoney dug into the fine print.

Apple released a new iPhone this month. Cue fireworks.

The new iPhone 7 comes with a slew of new and improved features, including a sharper camera and the controversial missing headphone jack.

Apple also announced a special financing option for people interested in purchasing the phone, which costs a whopping $649 on the low end and as much as $969 for the most expensive model. If you use Apple’s financing offer, you can make payments interest free for 12 months.

But is Apple’s financing option the best way to buy the new iPhone? We dug into the fine print.

Here’s what you need to know:

You’re really signing up for a credit card. Apple’s special financing offer is really just a credit card with a few perks. Apple partnered with Barclaycard, Barclays’ global payment business, to offer no-interest financing for iPhone buyers through a credit card. Customers can use the card to pay for the iPhone 7 or any other Apple products.

Beware of deferred interest charges. If you don’t pay off your iPhone fully within 12 months, you’ll be in for a nasty surprise. The Apple Barclaycard comes with a deferred interest clause. That means that if you even have $1 left to pay on your card after your interest-free promotional period is up, the card will charge you all of the interest it deferred over those months. The APR will vary from 14.24% to 27.24%. Either way, it’s definitely going to sting.

Your interest-free promotional period will vary by how much you spend. The period is six months for purchases of $498 or less; 12 months for purchases from $499 to $998; and 18 months to pay off a charge of $999 or higher.

The bottom line: Pay down your bill ASAP. Apple’s Barclaycard financing option can be a good deal — but only if you pay off your card before your promotional interest-free period ends.

Other Ways to Finance the New iPhone 7

Find a no-fee credit card. If the deferred interest clause makes you nervous, you could easily find another no-fee credit card that offers a 0% interest promotion that doesn’t carry such a clause. You can find a list of 0% interest card offers here. Just be sure to pay it down before your promotional period ends, or interest will begin to accrue. 

Finance through a mobile carrier. Another option would be to finance payments through your mobile phone carrier. Typically, this requires you to put a down payment on your phone and pay the remaining balance in installments that are added to your monthly bill for 17 to 30 months, depending on the carrier and plan. Most plans set the payment plan term at 24 months. This could be the better choice for anyone who is able to put down a decent amount toward the price of the phone. The more you pay upfront, the less you’ll have added to your monthly bill to pay off the phone.

Trade in your old phone to save. A third option to save on the new iPhone 7 would be to trade in your old smartphone for credit toward a new phone. All of the big carriers — AT&T, Sprint, T-Mobile, and Verizon — and Apple currently have offers that award credit toward a new iPhone 7 if you trade in older models of the iPhone and, in some cases, Android phones. The trade-in value will be deducted from your monthly bill over the next 24 months. The remaining cost of the new phone will be spread out over payments for the 24 or 30 months. If you leave the carrier before completing payment, you’ll have to pay the balance due on the phone.

Use Apple’s iPhone Upgrade Program. Another option would be to finance the phone with Apple’s iPhone Upgrade Program. The program would enter you into a 24-month, 0% APR agreement with the tech giant’s other bank partner, Citizens One. You’ll need a credit card to get started with the program. If you get approved, your card will be charged monthly over 24 months for the installment loan, which includes the iPhone 7, AppleCare+ (a $129 value), and any applicable taxes. You won’t be charged any additional interest through Apple or Citizens One. The highlight of this program is that you have the option to upgrade to the latest iPhone after six months or 12 payments, whichever comes first. You also won’t be tied down to any single carrier if you go with Apple’s iPhone Upgrade Program, which means if you dislike your plan, you will able to switch anytime.

MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.

KGW


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