If Apple’s plan for their credit card wasn’t obvious when it was announced, it should be after the latest reports. Sure, it seemed like a good way for them to offer some enticements for loyal fans like myself early on. Getting an almost immediate 3% back on all Apple purchases via Apple Cash is certainly nothing to sneeze at. However, that was just the tip of the iceberg.
We got an indication of a wider role for the Apple Card last year at the release of the iPhones 11 and 12. However, let’s look back for a moment to get some context. Apple offering their customers direct purchase options are certainly nothing new. For several years now, Apple has offered the iPhone Upgrade Program, an interest-free loan through Citizens One Bank that allows people to buy their devices directly from Apple.
I’ve taken advantage of this monthly payment plan since the iPhone 6S Plus, with two of the primary attractions being the inclusion of AppleCare+ and the ability to upgrade yearly with no penalty. I have had a very positive experience and have always wondered why it isn’t more popular with hardcore Apple fans.
However, while this program is solid, it is also somewhat limited. Qualifying for a loan requires at least an average credit score, which is a limiting factor for many people. It also doesn’t translate cleanly around the world, as not all banks do business in all countries that Apple operates in. Also, the Upgrade Program is a one or two year contract only. Once you pay off a phone after two years or trade in after one, your loan is closed and you have to start all over again. While Apple has streamlined the process over time, there are still hassles.
So now we come back around to the Apple Card. Last year, Apple announced a new offer alongside the iPhone Upgrade Program that showed some of their hand. They launched an interest-free iPhone payment plan for Apple Card holders called Apple Card Monthly Installments. The idea is very simple. Apple divides the total cost of an iPhone into 24 equal monthly payments. If you add AppleCare+ as a one-time purchase, that is included in the payments. If you trade an iPhone in with Apple, that amount is deducted from the total amount. As long as you pay the phone off in 24 months, you don’t pay any interest. You also get 3% of the overall price back in Apple Cash, just like any other Apple Card purchase.
The benefits of this plan are pretty easy to see. As mentioned above, there’s no interest as long as you stick to the payment plan. Also, if you pay the device off early, there isn’t any penalty. The installment plan simply ends. While you can’t trade in yearly as with the iPhone Upgrade Program without going to the trouble of selling your iPhone on your own, you also don’t have to start over from square one when you are done.
And that last part is the key that sets the Apple Card apart from the iPhone Upgrade Program. When an installment plan ends. the Apple Card stays with the cardholder and can be used for future purchases and plans. There’s no renewal process. If you lose your job or your credit takes a brief hit, you don’t suddenly lose your card. This gives Apple a more direct link to their customers that a loan program can’t. They can also offer incentives like interest-free payments and their 3% Apple Cash and have the opportunity to add more in the future.
Now we come to the new rumors from Mark Gurman of Bloomberg that Apple is ready to expand interest-free installment plans to more of their hardware lineup. I think this is an important, but expected move. I was asking for loan programs for iPads, Macs and Apple Watches a few years ago, but I have to admit that Apple Card is a much better mechanism for this. Apple has more control over the eligibility criteria for the Card and it will be more widely available across the world in the long term, as well.
According to Gurman, it looks like we will be able to purchase iPads, Macs, Apple Pencils, iPad keyboards, and Mac XDR Displays with no interest for 12 months and AirPods, Apple TVs and HomePods with none for six months. I would expect these programs to become very popular this year, especially in the wake of the economic impact of COVID-19. I also expect that these offers will result in a noticeable boost in applications for the Apple Card.
One other potential impact of these interest-free payment plans is Apple getting people to spend more money per device. Those buyers who aren’t worried about the interest and feel confident in paying a device off within the given time period may be willing to go a little further. I could absolutely see people stepping up to the next tier of memory or adding cellular to an iPad, or going up from a MacBook Air to a Pro on the laptop end. Maybe they will add a Pencil or Magic Keyboard when they wouldn’t if paying outright on day one. I think this potential to drive up the average price of sales per device is a big reason that the Apple Card exists.
One odd omission in Gurman’s report on interest-free plans that I’m curious about is the Apple Watch. Just because it isn’t specifically mentioned doesn’t mean it won’t be included, but it is worth noting. I think it is also a no-brainer for inclusion in such a payment program, so hopefully it will make the cut, as well.