Millions of U.S. consumers currently cannot afford to own a smartphone, but a startup called PayJoy hopes to put an end to that. Today nearly two-thirds of Americans own a smartphone, according to a Pew Research Study, and many of them rely exclusively on it for internet access because they cannot afford a home computer or broadband service. The Pew Research Center reports that 10% of Americans who own a smartphone do not have any other form of high-speed-internet access at home beyond their phone’s data plan.

The people in this demographic, which Pew labels “smartphone-dependent,” tend to have relatively low income and education-attainment levels. Pew reports that 13% of those with an annual household income of less than $30,000 per year are smartphone-dependent; by contrast a mere 1% from households earning more than $75,000 per year fall into that category.

While those in the smartphone-dependent group rely heavily on their devices, they cannot always afford to stay connected. Nearly half have been forced to cancel or completely shut off their phone at some point or another due to financial hardship.

Spreading PayJoy Across the Nation

Co-founded by Doug Ricket, Mark Heynen and Gib Lopez, PayJoy offers a revolutionary new way for cash-strapped Americans to affordably finance smartphones. “Many people struggle to afford technology that connects them to the world economy,” reads the PayJoy website. “Our innovative, software-enabled financing solves the problem.”

PayJoy’s application process is surprisingly simple. Customers can easily register at any participating retailer with nothing more than a Facebook account, phone number and government-issued ID. Unlike most lenders and financing companies, PayJoy does not check credit scores. (For more, see The 5 Biggest Factors That Affect Your Credit.)

A customer selects a smartphone, makes a down payment of 20% or more and chooses a three-, six-, nine- or 12-month payment plan. The store then installs PayJoy’s software on the device, and the smartphone is fully unlocked once the customer pays in full. If a user fails to pay after multiple notices, PayJoy’s software locks the phone until the payment is received.

According to John Buttrick of Union Square Ventures, PayJoy’s lead investor, PayJoy finances 70% to 80% of the price of the smartphone for three to 12 months at a monthly cost ranging between $50 and $150, depending on the price and term of payment. That amount is two to five times less than other in-store financing options, according to PayJoy.

To top it off, PayJoy allows customers to build their credit. “For many of its customers, PayJoy is their first financing product and the first step toward developing a credit history and using internet-based financial services,” Buttrick pointed out in his blog. (For more, see How to Establish a Credit History.)

PayJoy currently has agreements with two U.S. prepaid carriers, but the company hopes to eventually expand into the global market. Ricket, CEO for PayJoy, said its model could also extend into financing televisions and household appliances.

The Bottom Line

With millions of Americans depending solely on their smartphones to connect with the world, these devices have become essential for many consumers. Yet a large number of people simply cannot afford to purchase one. PayJoy, a pioneering startup that offers pay-to-own smartphone financing plans, has stepped into this market. If you're planning to buy a smartphone on time, compare its plans to other in-store options; they're likely to be cheaper. What's more, customers can register with nothing more than a Facebook account, phone number and ID.

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