Cost

• Depending on how frequently you use your cell phone, it may be more cost effective to purchase a pay-as-you-go phone. With a pay-as-you-go phone, the minutes may be more expensive but you are only paying for the ones that you use. If you tend to use a large number of minutes, a plan may save you money in the long run. You are charged each month for a set number of minutes as well as extra fees for any minutes that exceed your plan allotment. However, there are many plans available with unlimited minutes.
  
  

Credit

• To sign up for a phone plan, you have to pass a credit check. So, if your credit score is low, you may not qualify for a phone plan or you may have a higher upfront cost or monthly rate. Additionally, if you miss payments or default, your phone service provider can lower your credit score. With a pay-as-you-go phone, you are not subject to a credit check. You simply purchase a phone and pay for any minutes that you intend on using. If you can't afford minutes, you won't be able to use your phone, but it won't affect your credit score.
  
  

Limitations

• When you sign a contract with a phone service provider, you are legally obligated to pay the cost each month. You are locked into paying for service for a set length of time and are unable to terminate service without paying hefty fees. With a pay-as-you-go phone, you purchase a certain number of minutes or pay month to month. If the minutes run out, you must purchase another card with additional minutes. If you don't use the minutes within a certain time frame, they can expire.
  
  

Usage

• Pay-as-you-go phones are more flexible than contracts. If you are planning to purchase a certain type of phone in the near future, you may be better off with a pay-as-you-go phone so you don't have to pay a fee to terminate the plan. Additionally, people often use pay-as-you-go phones as a temporary solution if their phones are broken and being repaired. Contracts are a great option for people who need a large number of minutes and rely heavily on their phones. Additionally, if you need to use the Internet, e-mail and other features that require data plans, there are very few affordable phones available without a contract.
  
  

Purchase

• Although, there are many types of cell phones available, you are limited by the selection of phones compatible with your service provider. This is true for both contract and pay-as-you-go phones. There is a larger selection of phones available with contracts. Although you can sometimes use a phone on a different network, it may be much more limited or completely incompatible. When purchasing a new plan, service providers often subsidize part or the entire cost of a cell phone. With a pay-as-you-go plan, the owner is responsible for the full cost of the phone. Both types of phones are offered at phone company stores, major electronic stores and retail stores.