Beware paying more for Apple’s iPhone Upgrade Programme – it’s £100s cheaper to do it yourself

Despite the absence of a headphone jack and a lack of ‘new’ features – and the fact that you could fly to Australia for what it costs – I will be getting a shiny new iPhone 7 in a few weeks.

I’ve upgraded to the latest model every two years since my first smartphone in 2010. Now of course, buying an iPhone’s never MoneySaving, but we all have different needs (read: desires) – and if you’re going to get one anyway, you might as well do it as cheaply as possible.

Until now, upgrading every year has been unthinkable. But with the iPhone 8 likely to bring more significant changes, I know I’ll be tempted – and the launch of Apple’s official annual upgrade programme in the UK along with the iPhone 7 got me thinking about the most economic way to do it. By my calculations, taking matters into your own hands can be much cheaper…

How the iPhone Upgrade Programme works

The iPhone Upgrade Programme lets you pay for the iPhone 7 or 7 Plus in monthly instalments, with an option to upgrade to the latest model each year. It also includes AppleCare+, Apple’s iPhone insurance (which we explain below).

This is not to be confused with the separate iPhone Payments scheme which we’ve covered previously. That also lets you spread the cost of the latest iPhones over 20 months, interest-free, but it doesn’t include AppleCare+ and doesn’t let you upgrade.

The way the iPhone Upgrade Programme works is:

  • You pay £49 upfront. You then pay off the rest of the handset plus £119 for AppleCare+ in 20 monthly instalments. The price depends on which model you go for – eg, the 128GB iPhone 7 is £38.45/mth (see a full list of iPhone Upgrade Programme prices).
  • After the first 11 monthly payments, you can upgrade to the latest iPhone. If you do this, then at that point you stop paying for the iPhone you had, and instead pay another £49 upfront and commit to a further minimum 20 monthly instalments – to cover the new iPhone and continued AppleCare+.

You can continue to upgrade every year on this cycle, or just pay off your iPhone over the remaining months. However, there are two key factors which make it poor value:

  • You’re forced to take very limited insurance. AppleCare+ isn’t great value at £119, given you can get standalone insurance for £70/year which INCLUDES cover against loss and theft (AppleCare+ doesn’t – see below). Plus its two-year coverage becomes irrelevant if you’re upgrading annually.
  • You must give the old phone back to Apple when you upgrade. And it doesn’t give you anything for it. Resale value is pretty high even after a two-year upgrade, and even more so after just one (assuming you keep your phone in reasonable nick). This changes the whole equation…

Buy and sell the iPhone yourself and save £300+

Given the drawbacks of the iPhone Upgrade Programme, what’s the alternative? Well, you can make your own DIY upgrade programme simply buy a new iPhone each year (either paying upfront or monthly via iPhone Payments), then sell it when you upgrade.

This beats the Upgrade Programme for two reasons you get paid for your old phone, and you don’t have to splash out for AppleCare+. To prove it, I’ve crunched the numbers…

To determine the depreciation on new iPhones, I looked at data from mobile recycling site showing the resale value of the previous year’s iPhone when the new model was released each September. (Resale prices are likely to be even higher than this if you’re selling privately, eg, on eBay.)

iPhone resale value
Launch price Average resale price 1yr after launch Retention value after one year (1)
iPhone 5 16GB (2012) £529 £269 51%
iPhone 5s 16GB (2013) £549 £377 69%
iPhone 6 16GB (2014) £539 £348 65%
iPhone 6s 16GB (2015) £539 £308 57%
Source: (1) As percentage of original cost, rounded to nearest whole number.

Now, doing a like-for-like analysis between the two methods gets a little complicated, as the Upgrade Programme involves an ongoing cost – every time you upgrade you commit to another 20 months of payments. So to make a comparison, you have to look at costs over a fixed period.

I’ve chosen a 31-month period as that’s the minimum time you’d have to commit to to get one upgrade on the Upgrade Programme – upgrading after 11 months, then signing up to another 20 months to pay off the rest of the loan. And based on the data above, I’ve assumed an average resale value of 61% after a year.

It’s all back-of-the-envelope stuff, of course. I’ve made assumptions about the future cost of the iPhone and of the programme itself, but the following table’s a good guide:

Cost of iPhone 7 and one upgrade
iPhone 7 (32GB) Next iPhone in 2017 (32GB) (1) Projected resale value of iPhone 7 (2) Net spend over 31 months
iPhone Upgrade Programme £49 upfront, then £33.45/mth for 11 months £49 upfront, then £33.45/mth for 20 months N/A £1,135
Buy + sell yourself (3) £599 upfront £599 upfront £365 £833
(1) Estimated cost/model based on current iPhones – may differ at actual launch. (2) Based on average resale value percentage of 61% after one year using data from (3) You could also pay via iPhone Payments and then sell the phone, which would cut the upfront cost to £49.

Of course, this strategy isn’t without its risks there are a lot of unknowns in the estimates above, and if the resale market unexpectedly bombs, you could struggle to recoup a decent amount for your old iPhone.

But based on the educated guesstimates I’ve made, the DIY option is the clear winner – buying and selling a 32GB iPhone yourself is around £300 cheaper over a three-year period than doing it via the Apple programme.

And if you keep doing this, the savings could be more. When I projected the cost of doing two consecutive upgrades yourself (and selling the old phone each year), over 42 months it came out £485 cheaper than doing it via the Apple programme. Three DIY upgrades over 53 months come to a whopping £668 cheaper.

What about AppleCare+?

“But the Upgrade Programme includes AppleCare+,” I hear you cry.

It’s a fair point – so we haven’t been comparing like-for-like so far. Yet it’s important to understand that AppleCare+ is limited as insurance – for example, it doesn’t cover loss or theft and it limits the number of claims you can make for accidental damage.

To level the playing field though, let’s chuck in the cost of getting our own insurance over the same period. Insurance2Go’s full cover policy is our current mobile phone insurance top pick – it’s £70 for the first year (if you use our blagged code) and £75 every year thereafter (unless prices go up – which they equally could do with the Upgrade Programme).

Plus, importantly, the Insurance2Go policy does cover loss and theft and unauthorised calls – and there’s no limit on the number of claims you can make. It has a £50 excess compared with AppleCare+’s £79 (£25 for screen damage).

Adding Insurance2Go cover to our DIY upgrade increases the cost to £1,053 over three years – but that’s STILL £82 less than it would cost via Apple’s iPhone Upgrade Programme, and with much more comprehensive insurance thrown in.