Apple's New Leasing Program Could Spur More Upgrades. Here's What Investors Should Be Watching

There's been speculation for a while that Apple (NASDAQ: AAPL) would eventually launch a major leasing program for its devices. Still, until recently, the company mostly offered leasing plans for its iPhones.

But after Apple rolled out its new Upgrade program just a few days ago, the company is now all-in on letting customers lease their devices -- from the Apple Watch to its Mac computers -- through Klarna.

It's a big move for Apple, and it could make its premium products more affordable for some customers while encouraging others to upgrade to more expensive models.

Image source: The Motley Fool.

Apple offers customers an Upgrade

Apple used to have its iPhone Upgrade plan, which let some customers pay for their phones monthly and upgrade to a new one every year, but it's doing away with that plan -- while keeping the Upgrade name -- and rolling out leases for nearly all of its devices.

Apple said in a press release that new iPhones will start at $17.99 under the Upgrade plan, an Apple Watch will start at just $11.99, new iPads will start at $17.99 per month, and Mac leases will start at $24.99 per month. The iPhone and Watch will have leasing options of 12 to 24 months, while the Mac and iPad have 24- to 36-month leases.

Once a customer completes their lease term, they can either upgrade their device to the latest generation, purchase it with a one-time payment, or turn in the device and end the lease. Buy now, pay later payments company Klarna will handle enrollment, approval, and leasing billing, and the payment process will be managed in the Klarna app.

Removing the sticker shock and potentially boosting upgrades

The timing of Apple's new Upgrade leasing program is particularly notable because just a couple of weeks ago, the company significantly raised prices across many of its devices. For example, the cost of some of its Macs and iPads jumped by $200 or more.

Apple said the price increases are the result of surging memory processor costs, which have risen as demand for memory in artificial intelligence data centers increases. Many other tech companies are in the same boat as Apple, with their margins squeezed unless they raise device prices.

Apple hasn't announced higher prices for its iPhones, but is expected to do so once the latest generation debuts in the fall.

This is likely why Apple wanted to roll out its new Upgrade program as soon as possible. By giving customers the option to lease their devices instead of paying for them up front, Apple may be able to round off the harsh edges of its recent price increases -- while still maintaining the enviable 39% gross margins it earns on its hardware.

Investors will want to pay especially close attention to upgrade cycles

Apple's goal is pretty obvious, given the name for the new leasing program. Just as with its previous iPhone Upgrade plan, the company hopes that customers who lease their devices will develop a regular habit of upgrading to the newest version of their iPhone, Macs, Watch, etc., when the lease term ends.

And with low monthly payments for some devices, it'll likely be easier for users to justify getting a new device every year or two if the monthly price stays the same, or close to it.

What's more, the new Upgrade program could convince customers to buy devices they wouldn't normally purchase. For example, Apple is rumored to be releasing its first foldable iPhone in September, with a 7.8-inch screen and a premium $2,000 price tag.

That's a hefty sum to pay for a phone, but if some customers can lease it for a reasonable monthly price, then it could spur sales of the high-end device.

Give this some time to bake

Investors won't know how successful the new Upgrade program is for at least a few more quarters. Its new iPhones will likely debut sometime in September, and Apple's best-performing quarter is typically its fiscal first quarter, which covers the end of September through December.

This means that by early next year, investors will likely have more insight into whether customers are using Apple's leasing program.

But, at least for now, this looks like a smart move by the company to help ease the pain of its recent price increases -- and potentially convince some customers that a $2,000 phone is worth the cost.

Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Apple and Klarna Group. The Motley Fool has a disclosure policy.