Apple's new way to spread the cost of an iPhone 7 for zero interest

The new 'iPhone Payments' scheme is the first time we've seen a mobile manufacturer offer an interest-free loan so users can pay for the handset in installments, and it's a move which has the potential to significantly disrupt the mobile phone market.

Until now, unless you were willing to pay for a phone upfront your main options were to lock into a lengthy contract with a mobile network or mobile financing firm that would typically charge a significant amount of interest. See Mobile phone contract warning for more on the vastly inflated prices some networks charge.

Apple also unveiled its 'Upgrade Programme', which for a monthly fee will let you upgrade after a year to the latest iPhone and provide you with Apple's insurance cover, AppleCare+ (see more on how this works below).

How iPhone Payments works

Currently the iPhone Payments scheme is only available for the iPhone 7 and iPhone 7 Plus (see our iPhone 7 revealed news story for more on the phones themselves).

Once you've decided the model and storage option you want, then assuming you're accepted following a credit check, you sign up to a loan that's repaid over 20 one-month installments. The loan, which is provided by Barclays, has a 0% APR, so you'll pay no interest for it.

You pay a fixed upfront cost of £49, then a monthly price that varies depending on the model you go for. The monthly payments are made via Direct Debit you'll set up with your current bank - all-in-all, you'll pay the same over 20 months as if you'd bought the phone outright.

iPhone payment plans

A few things to note:

• This doesn't include an allowance. This is just for the handset, though it's unlocked so you'll be able to pair it with a cheap Sim. For example, you can currently get unlimited minutes and texts and 4GB of 4G data with Three for £9/mth over 12 months – see our top picks)

• You can only do it in store. Apple says you'll need to bring your personal informaiton and bank details, a valid photo ID and your current mobile. See Apple's website for more info.

• You'll need to be a UK resident and have a UK bank account. You must over 18, and have lived in the UK for 3+ years.

• You'll be credit-checked. We don't yet know about the eligibility criteria, but will update this article when we know more.

• If you can't keep up with the repayments... It's a loan, so the finance provider, Barclays would take the same actions as any other bank. It could result in a mark on your credit file, for example.

• You can pay the loan off early if you like. To do this you'll need to get in touch with Barclays.

Couldn't I just do this with a 0% credit card?

You could - this is something we've been saying for a while (see the Cheap Mobiles guide). Buy the phone upfront, then stash the card in a bowl of water in the freezer (lest temptation gets the better of you).

0% cards can be the cheapest way to borrow if you're accepted for one, and it's currently possible to get longer 0% periods than the 20 months Apple offers (see Best 0% Credit Cards for top picks).

The key difference though could be the lending creteria, and whether it would be easier to get approved for iPhone Payments than one of the long 0% cards around. We can't answer that – though our Credit Card Eligibility Calculator can give you an idea for your chances with the latter.

Is iPhone Payments worth it then?

If you're dead-set on getting the iPhone 7, don't want the potential hassle of getting a 0% credit card and are reluctant to pay for the whole thing at once, iPhone Payments is the cheapest way to get one right now as it adds no cost.

What we don't yet know though is if it will still work out cheapest once networks and resellers (such as Mobiles.co.uk*, owned by CarphoneWarehouse) announce their tariffs.

The networks may choose to subsidise the cost of the Sim to get your on-board - after all, there'd otherwise be little incentive to go with them rather than Apple. At the very least the introduction of iPhone Payments makes it likely we'll see some downward pressure on contract prices.

Resellers will also be ones to watch as currently they tend to be much more competitive than going direct to a network - even on earlier iPhones, they've offered some cut-throat tariffs that undercut buying a handset outright and getting a Sim-only deal, which is usually cheapest. We'll have to wait see if they're able to do the same with the iPhone 7.

'iPhone Payments' lets you spread the cost of the phone over 20 months

Why is Apple doing this?

A payment plan makes the iPhone more affordable to those who might struggle with a large single payment, while cutting out the middle-men (the networks) means it can charge retail prices rather than wholesale.

Essentially it looks like Apple's trying to make consumers their primary customers in the UK rather than the networks.

How the iPhone Upgrade Programme works

The separate iPhone Upgrade Programme is aimed squarely at diehard Apple fans.

Much like the iPhone Payments scheme, you pay an upfront cost and then a fixed monthly (depends on model) cost for the iPhone 7 or iPhone 7 Plus. That monthly cost is higher though – and this is because you get two added benefits:

1. You can upgrade to the latest iPhone after a year. After the first 11 months can choose to upgrade – if not, you simply ride out the remainder of the 20 monthly installments and the phone's yours (much like iPhone Payments). If so, the cycle starts again and you commit to another 20 months minimum (and get a new iPhone of course).

2. You get AppleCare+ included. This is Apple's iPhone insurance. It covers against accidental damage (with an excess), as well as dedicated technical support 24 hours a day. See AppleCare+ for more info.

iPhone Upgrade Programme payments

As you can from the tables above, you're paying £119 more over a 20-month period for the luxury of a new phone. That might sounds like bargain at first, but you have to remember:

• If you're upgrading you don't keep your phone after the first year - you have to give it back to Apple. So you effectively lose what you'd get by selling it.

• It assumes an ongoing cost – every time you upgrade, you commit to another 20 months.

• Most people don't upgrade every year. Many are happy to keep theirs for two years (and increasingly, even longer), so it's worth working out if you really want to pay extra for an annual upgrade.

If you really are committed to upgrading every year, this may be a cheaper way of doing it than buying yourself a new one and selling the old one - but that will depend on what you could sell the handset for each year. We'll be doing further analysis on this and will update this story shortly.