In today`s world, smartphones have become a necessity rather than a luxury. With the ever-evolving technology, new and advanced models of smartphones are launched every day, luring consumers to upgrade to the latest device. However, not everyone can afford to buy a high-end smartphone upfront. This is where phone contracts come in – a monthly payment plan for a new smartphone, financed by the network provider. But does this count as a personal loan?
Firstly, let`s understand what a personal loan is. A personal loan is a type of unsecured loan where you borrow money from a bank or a financial institution to finance your personal needs such as home renovation, medical expenses, or buying a new car. The loan can either be secured or unsecured, and you are required to repay it in fixed monthly installments with interest.
On the other hand, a phone contract is a payment plan for a new smartphone, where you pay a fixed amount to your network provider every month for a certain period, usually 12 to 24 months. The contract includes the cost of the device, data, calls, and other services offered by the network provider. Once the contract period is over, you own the device and are free to switch to a new provider.
Based on the above definitions, it is safe to say that a phone contract does not count as a personal loan. This is because a phone contract does not involve borrowing money from a lender, and the payment plan is for a specific device and service rather than general expenses. Additionally, there is no interest charged on a phone contract, unlike a personal loan.
It is essential to note that while a phone contract does not count as a personal loan, it can still affect your credit score. If you fail to make your monthly payments on time or default on the contract, it can negatively impact your credit score, making it harder for you to get approved for credit in the future.
In conclusion, a phone contract is not classified as a personal loan as it is not a loan, but a payment plan for a specific device and service. However, it is still important to manage your phone contract payments responsibly to avoid damaging your credit score.