What’s an ISP Service Contract and Should You Consider Getting One?

Reading time: 6 minutes

6 minutes read

Category: Internet
Posted on: 03/30/2021
the back of a white internet router with an ethernet cable plugged in

The vast majority of American households are linked to the internet in some way or another. As you can imagine, the business of being an internet service provider is booming. Everyone wants to get online to stream, download, upload, video chat, YouTube, game, or surf the web, and with this need comes the various contracts and bundles that allow our computers to link up to the internet.

ISP is shorthand for "internet service provider." It's the company you pay under the terms of an agreed-upon contract to provide you access to the internet. While an ISP service contract sounds like a simple agreement for internet access—it's much more than that. There are a lot of factors that can go into a service contract with your ISP, and it's critical that you read the contract before you sign, so you know what you're signing up for.

Contract Length

First and foremost, decide what an appropriate contract length is for you. Most ISP plans are for two years, but there are longer or shorter contracts available. The term length is important because you can get better rates for your plans and avoid cancellation fees if you foresee yourself needing to cancel the plan for any reason before the contract term is up.

Generally, it's best to plan for your ISP service contract for the duration you'll be living at your address of the service. Early cancellation fees can range from $175 to $300, and there could be surcharges that your ISP could apply for every month remaining out of your contract if you've canceled early.

But even committing to a long-term contract, unexpected things still can happen. Some providers have a penalty-free cancellation period, like your first 30 days, should you change your mind. Whatever you decide, it's important that you read the fine print on the cancellation policy, so you know what to expect and how to plan for it.

Unfortunately, there's no way to escape the early termination fee if you breach your contract. When signing the contract initially, you agree to all of the contract's clauses, including early cancellation penalties, fees, and surcharges. If you don't pay these fees, your internet provider has the right to submit your failure to pay to a debt collector. This information can end up reflected on your credit report and your credit score.

The No-Contract Option

When you don't sign up for a contract, you can still have an internet service provider give you a month-to-month, no-contract plan. With a month-to-month plan, you wouldn't have to worry about paying any early termination fees, but this type of service is more expensive than a two-year or one-year service term contract.

Month-to-month services can cost an additional $10 or more in comparison to longer-term contracts. If you're paying this over a longer period of time, the costs will certainly add up. But these monthly services are designed for people on the move who require flexibility or don't see themselves using a contract that would last two or so years.

Renters, short-term residents, and people whose lifestyles require flexibility may benefit more from a no-contract, monthly service rather than getting themselves locked into a two-year ISP service contract. Especially if they see the need to cancel the contract early and are faced with the early termination fees, the monthly service can avoid these substantial penalties in the long run.

Equipment Fees

Whether or not you choose the no-contract monthly service option or a standard two-year plan, there will be equipment fees if you don't own the equipment necessary to connect to the internet. The equipment you'll need includes a modem and router to use the provider's service. If you're opting for a bundle with your internet, like having a TV package, the equipment can also include things like a DVR, set-top boxes, or other necessary hardware from the cable company.

You don't have to purchase this equipment from your internet service provider, but you can lease it, which is a common thing to do. Leasing fees range anywhere from $5 to $15 per month, depending on the equipment you need to get set up.

When your contract concludes, if you don't want to renew, you'll need to be sure to return the leased equipment back to your service provider. Otherwise, you're looking at paying the full retail price on these pieces of equipment, or the service provider will keep charging you the monthly leasing fee until the equipment is returned. You can return the equipment by mail or in person.

Installation Fees

With an internet service contract for bundled packages that includes things like cable and phone, you'll see more need for professional installation. This is especially true when your home doesn't have the wiring set up for the service you've requested.

If your service contract just is for your internet, installation can be done yourself, saving you on the installation fees altogether. It's common for service providers to send self-install kits, and many of them have these kits available. If your home is wired for their service, all your provider needs to give you is the equipment necessary to set up the network, which is the router and modem, if you don't have these things already. Service providers will typically mail the equipment needed for a self-setup, and once your contract is over with them, you'll simply mail their equipment back.

If you already have a modem and router that you own, you may be able to set up the service on the spot without your provider needing to mail you anything at all. The equipment just needs to be hooked up, and then you'll give the provider the MAC address on the modem and activate the internet on your behalf.

For internet service only, installation isn't that expensive, but as soon as you bundle other services like cable and phone, it gets a little trickier. However, once your house is set up and wired to accommodate these services, you won't have to do it again.

Fixed Price

Perhaps the greatest benefit of an ISP service contract aside from their lower prices overall is the protection you'll receive from price surges. Monthly services are subject to price changes for most internet service providers, which means the provider can charge by the amount of data you use. If you binge on streaming or downloading during a particular month, your rate could increase on your next bill.

Longer-term contracts offer higher data and a fixed rate to protect against price increases or from running out of bandwidth before the end of the service period. With a fixed rate, you won't have to worry about your bill being different one month to the next, using too much data, and having to pay for it with a price increase.

ISP Service Contracts are a Better Deal

Overall, a standard two-year ISP service contract is a much better deal than its monthly service counterpart. You'll end up saving more in the future, and under an ISP service plan, your flat rate will protect you from pricing increases or running out of data before your current service period is up. Unless you're renting for a short period of time, save money by getting yourself an ISP service contract.

Finance Guru

Finance Guru