Science & Technology



Leasing from Sprint? Beware: You could end up paying more than phone's full price

Mark Davis, The Kansas City Star on

Published in Science & Technology News

The price tag at the end of the lease is called the "purchase option price." It covers the 25 percent of the phone's price that the lease payments hadn't covered.

For a customer who buys at this price, the lease works out much like an installment plan purchase but with a large payment at the end.

Older leases at Sprint, those taken out before mid-July, require the customer to pay the full amount at one time. Sprint Flex spreads the payments over six months after the lease has expired. Sprint plans to add this option to those older leases in March.

Doing nothing

Out-of-term revenues come into play when a Sprint lease customer does nothing at the end of the lease.

Sprint's website shows that the lease automatically extends to a month-to-month lease. The customer still can upgrade to a new phone and new lease. And the customer still can buy the phone.

Sprint keeps collecting monthly lease payments, and after several more has fully recovered the original cost of the phone -- that 25 percent of its original purchase price not recovered during the original lease term.

Even then, Sprint keeps collecting month-to-month lease payments because it doesn't count the out-of-term payments toward a purchase of the phone.

That's how leasing works, said Margot Saunders, senior counsel for the National Consumer Law Center in Washington. It's why leasing can be the most expensive way to buy something, she cautioned, adding that consumer leasing for various products is on the rise and typically unregulated.

"There's nothing unfair about this. It's business. It's the way capitalism works," Saunders said. "Businesses try to take advantage of consumers as much as they can. Buyer beware."

Consumer advocate Edgar Dworsky went further. He said fairness does come into play when Sprint decides what to do with those out-of-term payments.

"If all the payments during the term of the lease help reduce the total the consumer owes at the end of the lease should they wish to buy the phone, it seems quite unfair not to similarly apply the payments made after the lease's expiration," Dworsky said in an email.

For Sprint lease customers, one more thing changes if they do nothing once the lease expires -- the buyout price on the phone.

Instead of paying the 25 percent of the original phone price that Sprint hasn't collected yet, the customer has to pay the fair market value of the phone to buy it.

And for popular cellphone models such as an iPhone or Galaxy, the fair market price typically exceeds the "purchase option price" the customer turned down a month ago.

These phones hold their value well and that higher price can linger for months even as the customer makes monthly lease payments.

Toikka calculated the potential out-of-term revenues from a customer who leased a 64GB iPhone 6S Plus in September 2014. The phone, a basic model, would have cost $849 upfront.

However, in the 38 months since then -- assuming the customer did not upgrade or pay off the phone -- Sprint would have collected $1,344 in monthly lease payments, Toikka said. And, he added, based on buy-back prices on Sprint's website Nov. 16, the customer still would owe the company $205 to buy the phone and stop the lease.

"Sprint is making a lot of money out of this," Toikka said.

Toikka and others acknowledge they don't know how much money. Piecyk, the investment analyst, said it is "unlikely" that the total is meaningful to Sprint's business.

Sprint declined to provide a total. Toikka said the revenues may come mostly from one group of customers, those who likely don't have the money to buy the phone outright at the end of the lease.

"We expect that it's a sizable portion of Sprint's lower income subscribers who actually stick with a plan for a long time and keep making these lease payments," Toikka said.

Your best interest

Sprint goes to great lengths to inform lease customers about their options, said Robert Hackl, senior vice president of leasing at Sprint.

By the time a customer reaches the end of a lease, the company typically has sent 10 emails or texts letting customers know about their options. These advise customers when they can first upgrade, when their lease is nearing its end and that they have the option to buy, upgrade or continue leasing.


"Some of those customers, we have to admit, maybe they have never read any of those communications, but we try very hard," Hackl said.

Recently, Sprint began to target long-time lease customers with what Hackl called a "more explicit" message.

"We would even tell the customer in month 30, 'You're now on a month-to-month lease for an extended period of time. Financially, this is not in your best interest,' " he said.

The customer's choices, however, have not changed. Ending the lease requires surrendering the device, upgrading to a new one or buying the phone at the fair market value. And the lease payments don't cover that.

Hackl said a lease would not run forever. Once the fair market value of a device falls to the point that a monthly lease payment covers it, the lease ends, he said.

Staying on a lease wipes out one of the key benefits of leasing in the first place.

Upgrading during a lease allows a customer to get a phone with newer features. That might be a better camera, stronger security or a larger screen.

It also can mean getting a phone with newer technology that increases data speeds on Sprint's network, such as its addition of HPUE technology now available on 10 devices such as the Samsung Galaxy S8.

Lease payments, like installment plan payments, are more affordable to some consumers than the full upfront price of high-end cell phones. Leasing also avoids the additional upfront burden of paying sales tax, which Sprint said it collects through the lease payments.


Just as Sprint's out-of-term revenue collections are unknown, so are the revenue costs from the higher churn that Claure acknowledged among these customers.

Moody, for example, was so infuriated by his discovery that he churned off Sprint's network and onto Verizon's within the week -- after eight years as a happy Sprint customer. And Moody vowed never to return to Sprint, where he figures he's spent close to $10,000 as a customer.

Valcourt Bachard, a Sprint customer in Orlando, Fla., said he was ready to churn, too. He leased an iPhone 6S from Sprint not long after high school.

With no credit record, Bachard had to make a down payment of "a couple hundred dollars" to qualify for the lease. It also meant his payments under the 18-month lease were only $11, when without the down payment they would have been $22.

Then in August, the payment jumped to $22 a month, Bachard said.

"They didn't tell me anything," he said. "They just bumped it up."

At first, Bachard paid, thinking it had doubled because in July he'd added a second line to the account with another phone he already owned. When he questioned the increase earlier this month, he learned the increase had come because his lease had expired.

Sprint acknowledged that month-to-month lease rates are based on the rate that would have applied without any upfront payment on the phone.

Faced with the same options as Moody, Bachard said he'll pay the $150 fair market price to keep his iPhone. But he's not planning to keep Sprint.

He's unhappy that his out-of-term revenue won't cover any of that tab, and he complained on Twitter, where he goes by the handle Don Nino.

In a reply to his Twitter post, SprintCare apologetically acknowledged that Bachard "should have been educated" on that point.

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