When cellular telephones emerged as a viable option for the average consumer, they were offered on contracts which required the purchaser to commit to a one- or two-year plan. Eventually, no-contract cell phone, or pre-paid cell phone, providers began to emerge to address a growing market of potential consumers who either did not qualify for, or did not choose to, enter into a contract for cell phone service. Providers who offer no-contract cell phones allow consumers to purchase minutes in small to large quantities that are then "loaded" onto the cell phone and may be used as needed. Other providers of no-contract cell phones allow users to pay for a month of unlimited service in advance at a pre-set price. Usage, therefore, is paid in advance instead of at the end of a billing cycle as is the case with traditional cell phone plans.
Prepaid or no-contract cell phones may generally be easily purchased at a variety of local stores or at kiosks located inside larger malls. Some of the larger providers of traditional cell phone service also provide the option for consumers to choose a prepaid service instead of a contract service. Minutes can then be purchased separately, or the consumer can purchase a month's worth of unlimited service ahead of time.
With a traditional cell phone plan, the consumer must provide personal information proving that he or she is over the age of 18 as well as identification so that the provider may run a credit check to determine whether a deposit is required. If the applicant's credit score is not high enough, a large deposit is generally required. As a result, anyone under the age of 18 or who does not be the credit score requirements is either unable to enter into a contract or must first pay a substantial deposit.
One of the advantages to no-contract cell phones is that very little personal information is required and there is no minimum age requirement due to the fact that the consumer is not entering into a contract with the provider. In addition, a person's credit score is irrelevant, making ownership of a cell phone possible for a large segment of the population whose credit score is less than acceptable, or non-existent. An additional advantage to no-contract cell phones is that it is impossible for the user to incur overage charges, as the phone simply stops working when the minutes have been used up. The plan may also be for unlimited service at a pre-set and pre-paid amount which must be paid at the beginning of the cycle instead of after the cycle terminates. Pre-paid cell phones are also an excellent option for very young users who, ideally, only need the cell phone for emergencies.
Among the disadvantages to no-contract cell phones is that the consumer typically has less selection when choosing a phone and must pay the full retail price of the phone. With traditional cell phone plans, the provider often offers the phones at a deeply discounted price as they count on making money from the consumer over the life of the contract itself. Coverage may also be an issue with pre-paid cell phones, as many providers of pre-paid cell phones are smaller providers without the capacity to provide the coverage that a larger company provides.