The Quick Guide to How Prepaid (No Contract) Phones Work

There are some advantages to phone service without a contract

Prepaid phones are cellphones that have a monthly service that is not contract-based. Instead, you purchase the airtime and data you need one month at a time. If you don't want to buy any one month, you can skip it, and then renew the next month if you like.

The Basics of Prepaid Phones

Prepaid phones are just like the phones that come with contracts. Depending on what you're willing to pay for a phone, you could have something basic, or you can have the latest and the great (and the most expensive) new smartphone. The phone you use is entirely up to you.

Where prepaid phones differ from other phones is in the contract. Rather than having a monthly contract that you're committed to for 12 or 24 or more months, you prepay for your cellphone service each month, and you get to choose how much talk time, texting, and data you can afford.

Another critical difference between prepaid phones and contract phones is how you acquire the phone. You can get a prepaid plan from a carrier like AT&T or T-Mobile, or you can opt to purchase a prepaid phone at a convenience store or big box retailer. Then you choose the service you would like to have. As you'll see below, there are plenty of carriers available.

Advantages and Disadvantages of No Contract Phone Plans

There are plenty of advantages (and disadvantages, too) to using a prepaid phone, but the perk that drives most users to prepaid phones is the fact that there are no contracts and no credit checks. Prepaid phones are also an excellent way to manage the time spent on a cellphone, and that's why many parents choose them for their children.

A prepaid plan is limited. When you use up the prepaid minutes or data, you have to buy more. For parents who are raising tweens and teens, this ensures those kids pay attention to the amount of time they spend on the phone. Yes, it is possible to get unlimited prepaid plans. However, they're usually as expensive or more expensive than a regular carrier's plan.

On the downside, there can be limits on the type of phone that you can use on a prepaid plan, and the available phones can be expensive, especially if you want a phone with all the capabilities of today's smartphones. That also means that no contract phones often have limited features; if you're buying a less expensive phone, it may not have all the features of a phone that you could pay for through your service provider's contract system.

Finally, most no-contract phones have limits when it comes to transferring phone numbers to different providers. Some prepaid phones also have numbers that are no longer valid once the prepaid time runs out. If you don't renew before the service expires, you lose the phone number completely (and are often charged additional fees to get a new number).

Are Prepaid Phones Disposable?

You've probably heard no contract phones called disposable phones or burner phones. And you could think of these phones as disposable, but most people won't want to purchase a new phone each time they need to add minutes and data to their phone plan. Most people who opt to go the no-contract phone route plan to keep their phone for an extended amount of time; they prefer the flexibility of having phone service without a contract.

How Prepaid Phone Cards Work

Prepaid phone cards are entirely different from prepaid or no-contract phones. Prepaid phone cards can be purchased for any amount of money, and they have a limited number of prepaid minutes available on them for phone calls.

Some prepaid phone cards are reloadable, others are disposable, and they often carry specific dialing instructions and sometimes additional fees for usage. These cards can only be used with prepaid phones if the phone has available minutes for the call. When using a prepaid phone card, you will be using your prepaid minutes from your no-contract phone plan, as well as the time that's loaded onto the calling card.

Which Carriers Offer Prepaid Plans

When considering a prepaid phone plan, the first question that comes up is which carriers offer prepaid plans? The answer is most of them. From top-name carriers to local and regional carriers, it's likely you'll be able to find the prepaid plan that's right for you.

iPhones are often off-limits when it comes to prepaid plans; however, if you use an iPhone and you feel that a prepaid iPhone plan is right for you, many of the same vendors that offer service for other phones also provide service for iPhones.