How Do Prepaid Phones Work?

When most people think prepaid phones, they picture a $10 flip phone that you constantly have to load minutes on or risk having no method of communication all of the sudden. They picture the kind of phones that do nothing other than call and awkwardly text. Phones that you’d be embarrassed to pull out in front of a date with service so shoddy, why even bother having one? That was what the prepaid market was when it first started many years ago, but prepaid phones have come a long way since then. Now you can activate the newest devices and enjoy coverage pretty comparable to most of the postpaid carriers at half the price. Sounds too good to be true? Well, there are catches, but for a lot of people, it might just be worth it.

How do prepaid phones work?

Well, there are multiple parts to this question but we’ll start with the obvious. Unlike other ‘traditional’ phones, prepaid phones require you to pay upfront the cost of usage. This might be in the form or reloading (or ‘topping up’) the phone with a balance via card or it might just be a flat monthly fee for limited or unlimited services. In order to use your phone, you must use first pay for that month. Hence pre­–paid. In contrast, most people have what is called a ‘postpaid’ phone contract. You sign a contract, purchase a phone for little to nothing and then use minutes. At the end of every month, you get a bill for your plan plus whatever overages you incurred that month. Prepaid plans, however, don’t require any kind of contracts. But, on the downside, they also don’t offer phone subsidies–you have to purchase your phone outright, which is why many prepaid phones are in the cheaper price bracket. It is worth noting that some companies are advertising themselves as ‘no-contract’ which isn’t always the same as prepaid. Those companies are exactly what it sounds like–they do not require you to enter into a contract for the service, so you can quit at any point. Some of them bill at the beginning of the month, while others bill at the end of the month. The difference is that companies that bill at the beginning of the month tend to provide more peace of mind, as you don’t have to worry about overages or surprise charges. That isn’t to say postpaid no-contract carriers and MVNOs are bad–simply that they work differently. Be sure you know which one it is before you sign up.

What’s an MVNO?

If you’ve been looking into prepaid phones, you probably came across the term MVNO. It’s one that gets thrown around a lot, and everyone basically assumed you know what it means (I’m guilty of that on this blog as well). MVNO stands for Mobile Virtual Network Operator. An MVNO does not actually have a network of their own–they instead purchase or lease a network from one of the major carriers and sell it to consumers. They provide all of the customer service, billing, technical support–everything except actually owning the network. MVNOs are kind of a gamble, in my opinion. You can sometimes get fantastic rates and the same sort of coverage as you’d experience with a larger carrier. However, because they don’t actually own any of the network they are selling you access to, MVNOs tend to come and go pretty quick. If they are unable to balance finances or cannot work with the operator, they are likely to shut down with varying amounts of notice. It’s extremely common to see MVNOs come and go, which can result in a loss of money for the consumer if you load a lot of cash on your account and then have to switch your account over. However, there are some MVNOs who have been operating successfully for years with good customer service. So don’t be scared away from the MVNO market–just be aware that newer companies aren’t always stable.

Do I have to use a cheap phone?

Absolutely not! Most MVNOs and carriers allow you to bring your own phone or to purchase a phone. The main reason you see prepaid customers with mid to low range phones is because with prepaid plans, you must purchase the phone outright. So while you can bring an iPhone 6 to many MVNOs and carriers, most people don’t have $700+ to drop on a phone. However, don’t get discouraged just yet! There are plenty of midgrade phones (like the Moto G) that are still excellent quality without breaking the bank. Make sure you read through the reviews before purchasing it. And, most importantly, make sure the phone will be usable on the network you want to use. If the company uses Verizon or Sprint, it must be a CDMA phone. If the company uses T-Mobile or AT&T, it must be a GSM phone, and both phones must be unlocked. For more information about unlocking phones, click here.

How do I pick a network?

Well, the easiest way to pick a network is to ask around and see which carrier has the best network in your area. All four major carriers have prepaid options and MVNOs that sell their network to the prepaid market. Here is a partial list to get you started. And if worst comes to worst, remember that this is prepaid. If you purchase a phone through someone and find out that night you have zero service, you can cancel at any time with no penalties–other than the cost to setup and whatever money you have already put on the phone (still bound to be less than the ETF for a postpaid contract!).

So, what’s the catch?

There are several reasons that prepaid might not be worth the money. For heavy mobile phone users, it can get expensive to constantly be refilling your phone. Of course, there are many MVNOs that offer unlimited packages similar to the sorts of plans you’d see at a postpaid, but a lot of times they will be a little more pricey for the data you get. Truly unlimited data on prepaid is hard to find. Another downside to prepaid is that you must purchase your own phone. I mentioned this briefly above, but if you’re someone who craves the newest tech, it can get pretty expensive pretty quick. Then again, because you 100% own your device, you are free to sell it and purchase a new phone whenever you can afford to do so. Probably the largest mark against prepaid coverage is their network. While it is often very similar to the postpaid customer map, prepaid networks rarely include roaming off network. That means that depending on where you live, you might suddenly lose service or have patchy calls. Additionally, prepaid customers on certain networks–most notably Verizon and Verizon MVNOS–tend to be throttled to slower speeds for data while the higher speeds are reserved for postpaid consumers. The final minor inconvenience is the instability of new MVNOs and the speed at which they can rise and fall. This can lead you to losing a number or constantly having to port your number and phone to a new plan. Because it’s prepaid and you own your phone the most you are losing is a little bit of prepaid funds and some time. But it is still an annoyance for some.

Why go with prepaid?

In short, to save money. Depending on where you live, what kind of serice you get and how much you really use your cell phone, you can save a ton of money by switching to a reloadable prepaid card or a minimal monthly bill. Republic Wireless offers wifi-only phone plans for as little as $5, which would be perfect for a stay-at-home mom. The variety of options is impressive, and you really can find a little bit of everything. While it isn’t for everyone, prepaid plans can really be just as good as postpaid–even better in some instances. Just be sure you know what you’re getting into and do your research to avoid frustrations.   Have any questions or tips? Let us know in the comments!]]>