5 Things You Should Know About T-Mobile’s New No-Contract Plans

T-Mobile has made a bold step by getting rid of two-year contracts. Here's the skinny.

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T-Mobile has made a bold step by getting rid of two-year contracts. It’s actually not quite that simple – especially if you want an inexpensive phone – but there are savings to be found nonetheless. Here’s the skinny.

The plans are affordable, considering what you get. Fifty bucks a month will get you unlimited minutes, unlimited text messages and 500 megabytes of data. Ten bucks more gets you an additional two gigabytes of data; ten bucks more than that gets you unlimited data. Family plans start at $80 per month for two phones and top out at $210 per month for five lines and unlimited data.

All plans include unlimited text messages and the ability to use your phone as a data hotspot for your other devices, which are nice perks. Such features can cost extra on competing networks.

There are no data overages, but there’s a catch. Let’s say you opt for the $50-per-month plan to try to save some money, but you blow through your 500-megabyte data allotment. You won’t be charged extra and your data won’t be turned off, but it will be slowed down to almost unusable speeds. Remember dial-up? How slow everything was? We’re talking speeds close to dial-up.

Of course, connecting your phone to your home or office Wi-Fi connection will keep your data speeds nice and fast. Only the data connection to T-Mobile gets slowed down; you should connect your phone to Wi-Fi whenever possible as a general rule of thumb, since it doesn’t use your T-Mobile data allotment.

There are no two-year contracts, but there’s a catch. Your smartphone that cost you $200? It actually costs a lot more than that, but you paid $200 for it in exchange for a two-year contract with Verizon or AT&T or Sprint or whichever company you’re with. So how can T-Mobile continue to offer cheap phones when there are no two-year contracts anymore?

One way is by letting you pay full-price for a phone. Samsung’s Galaxy Note II costs $680 that way. That’s the most expensive one; some are far cheaper. The other option is to get the phone at a discount, but pay up to $20 per month for two years as an equipment fee. In this scenario, the Galaxy Note II costs $200, plus $20 per month for two years.

So that $50-per-month personal plan all of a sudden costs $70 per month and you’ve agreed to a two-year contract of sorts.

You can use the iPhone, but there’s a catch. AT&T and T-Mobile use similar cellular technology, making it possible to use AT&T phones on the T-Mobile network and vice versa. If you pay full price for a T-Mobile phone (as in the previous scenario) and you decide you don’t like T-Mobile, you can jump ship and use it on AT&T.

Likewise, if you have an AT&T phone, such as the iPhone, and you’ve paid full price for it or fulfilled your two-year contract with AT&T, you can use it on the T-Mobile network instead. This quip from the fine print on T-Mobile’s Bring Your Own Device page is important, however:

T-Mobile does not sell the iPhone. Verizon and Sprint iPhones will not work on our network; other iPhones may have limited functionality, including coverage limitations. Capable device required for 4G speeds; the iPhone is not currently 4G capable on our network.

T-Mobile uses a different flavor of 4G data than AT&T uses for the iPhone, so your 4G LTE iPhone 5 would download apps and surf the web considerably slower. T-Mobile is readying its own 4G LTE network, however, so the word “currently” in that above quip might very well mean something someday.

UPDATE: T-Mobile will begin selling the iPhone directly on April 12

Run the numbers to see if paying full price for a phone makes sense. Using the $680 Samsung Galaxy Note II as an example, over the course of two years on the $50-per-month plan, you’d spend $1,880. If you were to pay $200 for the phone, plus $20 in equipment fees for two years, the total cost with the $50-per-month plan would also be $1,880.

If you’re the type of person who uses a phone for at least two years before buying a new one, the installment plan could make sense here. If you don’t like two-year contracts or you want to upgrade to a new phone every year (sell the old one on eBay or Craigslist or use one of the many trade-in sites), paying full-price up-front could make sense. It’ll make your monthly costs cheaper, too.

MORE: How to Be a Frequent Smartphone Switcher