Unbundling is new way to go about obtaining a phone and a phone contract. It should be center stage and receive all the limelight but seeing as it isn't in the best interests of the phone networks, you likely won't hear about it from them when you go in to buy or upgrade your next phone.
What is unbundling?
Unbundling is when you buy your phone, your phone usage plan and the the loan for your phone all separately.
When you take out a phone contract today, you are essentially taking out a loan which includes the value of your phone plus your usage plan included in the monthly price you pay. This sounds good at first as you are able to get an expensive phone for a much cheaper rate but nobody seems to tell you what APR you are paying for this loan or give you the chance to chose how much deposit you want to pay etc. The loan is essentially set with fixed terms which benefit the mobile network providers.
In fact, they are not obliged to inform you its a loan simply because it isn't called a loan. Although behind the scenes it really is. This means they get away without showing you the APR you have been offered and why you have been offered that rate.
Phone network providers essentially pick a phone and stick on a fixed amount of interest on a particular model based on its demand. They then offer all this phones to consumers with the same terms and paying little consideration into how your credit score looks. This is fair for those who don't have great credit scores and are willing to pay an acceptable monthly payment but very unfair for those with significantly better credit scores who should be paying less in monthly repayments.
Unbundling essentially breaks the three components needed to get a phone into 3: Your phone, the plan and the loan needed to buy the phone. This allows you to get the best rates possible for each.
The benefits of unbundling
Unbundling ensure you get a fairer deal. This is especially true with the loan you use to buy your phone. You can now ensure you are getting the best deal for your phone purchase as you are able to shop the whole market for the cheapest loan. You will usually buy your phone contract via a small personal loan in the case on unbundling. Hidden APRs on mobdile phones could be as high as 48% according to Money saving expert. This is miles away from the average 9.7% being offered on comparable loans.
Unbundling allows you the flexibility to set out your monthly payments in a way you can afford rather than the predetermined prices the phone networks have set. Unbundling also allows you to move mobile network providers as often as you wish depending on what agreement you have on your mobile network plan. Regardless it will be significantly less costly to switch between providers.
You are free to do what you want with the phone when you unbundle. You can sell it instantly if you want to change it. Switch providers. Move countries etc. Remember, the phone is not tied to your personal loan which you used to purchase it.
The disadvantages of unbundling
Loans will cost you by way of interest and although there might be significant savings, in this case the loan is based on your credit score.
If you have a bad credit score then it is more likely the APR you will be offered will be significantly higher and your monthly payment might be much higher than what you will have paid for a comparable phone contract.
When considering unbundling , your main cause of worry will be what type of credit you should take out.
You can take out:
A credit facility from the manufacturer which will be similar to a personal loan but might have more or less restrictions.
Or you can use a credit card. A 0% purchase card will likely be the best option but you should be aware of when the introductory 0% offer ends and be sure to clear your balance to prevent being charged interest for your purchase.