Now you can lease the latest smartphone

But it won't be cheap

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By James Rufus Koren, Los Angeles Times

LOS ANGELES — For years, flip phones, stick phones and lower-end smartphones — but not iPhones and other top-of-the-line models — were Gary Fuentes’s best-sellers.

His family’s La Fiesta Wireless prepaid-phone shop in El Monte tried selling pricey models such as the Samsung Galaxy S3, which came out in 2012 and retailed for more than $400. But the shop’s working-class customers weren’t interested.

“We would probably stock no more than five or 10 of the expensive phones,” he said. “Customers were focused more on the $100 phones, the $150 phones.”

The highest-end smartphones haven’t gotten cheaper — if anything they are more expensive — but Fuentes is now seeing many more customers willing to shell out for the latest iPhones and Samsung’s flagship Galaxy S7. They’re just not doing so all at once.

A growing number of prepaid phone users are financing their phones, choosing rent-to-own plans that enable them to pay over several months or a year. That’s relatively new in the prepaid market, where customers have generally bought phones outright and where inexpensive phones still dominate.

Big-name phone carriers such as Verizon and AT&T will sell customers a phone and let them pay for it over a few years, usually without any interest or markup over the retail price. Such deals, though, are available only to customers with decent credit who sign up for a standard monthly service plan.

But these new payment plans, aimed at customers with bad credit or no credit, come at a cost. Spreading out payments can mean paying more than $1,500 over the course of a year for an iPhone 6 Plus that retails for $750.

Though the plans technically aren’t loans, payments at leasing companies with pricier terms can be the equivalent of borrowing at interest rates topping 200 percent.

“Some customers come back and say they did the math and realized this was kind of expensive. They realize they could have bought two phones for that,” Fuentes said.

As the plans are structured as leases, customers can return the phones — typically after a minimum rental period of a few months — and be off the hook for the remaining payments. Still, consumer advocates warn that these plans, similar to rent-to-own arrangements used to buy furniture and appliances, encourage customers to get things they really can’t afford.

“Is it a good idea for consumers to get a phone when they end up paying 100 percent interest for it? I wouldn’t do it,” said Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group. “Rent-to-own companies make the promise of the American dream — that you can own anything — but the price is high.”

Most prepaid customers — about 86 percent — now have smartphones, according to research company NPD Group.

But the vast majority of those phones are models that cost $150 or less, according to consulting firm IDC Research. That includes lower-priced phones from LG, Samsung, ZTE, Huawei and Kyocera.

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