Leap Wireless' (NASDAQ:LEAP) Cricket and MetroPCS (NYSE:PCS) both recently launched handset financing options that will allow eligible customers to make a down payment on a smartphone and pay off the remainder in the future. The programs are geared toward helping the prepaid carriers' customers afford high-end smartphones, which the carriers do not heavily subsidize and can cost as much as $500 upfront.
MetroPCS confirmed it is working with Progressive Finance and BillFloat to provide handset financing options to its customers. Leap's Tyler Wallis, senior vice president of marketing and product development, said the Cricket carrier is working with Progressive Finance. Progressive Finance and BillFloat essentially cover the cost of the handset and make money via interest and repayment fees. However, neither company conducts a credit check; instead, both require only access to an active bank account.
Leap's Wallis said the carrier launched its handset financing program in time for Black Friday sales, and he said it is now available nationwide at Leap's corporate stores and through its dealers, a total of 2,500 locations.
Wallis explained that Cricket customers who purchase more than $200 worth of hardware (phones and accessories) can apply for a Progressive Finance loan at a Cricket store or dealer via an online application. He said the program can pay up to 90 percent of the value of the purchase, which means that customers could walk out of a Cricket store with an Apple (NASDAQ:AAPL) iPhone 5 after paying just $105--a price that includes the first month of service and 10 percent of the cost of the phone.
"We're really excited about it," Wallis said. "Consumers are really excited about our rate plans … but they're struggling with the fact that an iPhone 5 is $500 upfront."
If a customer pays off the loan within 90 days that are not assessed an interest fee, and they can take up to nine months to pay off the full amount. Wallis said the financing agreement is between the customer and Progressive Finance, and Cricket won't have to deal with late fees or interest payments.
Wallis said Cricket's handset financing plan is slightly different from T-Mobile USA's Value Plans, where the carrier allows customers to pay off the cost of a phone throughout the course of their two-year contract. He said Cricket is a prepaid carrier and doesn't require customers to sign a service contract, and he said Cricket's program doesn't require a credit check.
Wallis said Cricket has been advertising its handset financing plans in "select markets" and plans to expand that advertising in the first quarter of next year.
MetroPCS declined to provide details on its handset financing options other than to say that the program "allows customers the ability to use MetroPCS' 4G LTE services on higher-priced handsets."
Neither Cricket nor MetroPCS requires customers to sign service contracts, which means neither carrier heavily subsidizes the cost of the phones it sells. Postpaid carriers are able to heavily subsidize the cost of handsets because they can recoup that expense through assured monthly service charges. Thus, handset financing programs can allow prepaid carriers to sell more expensive smartphones for lower initial prices--a key tactic in an industry where smartphones continue to generate significant sales.
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