How does the iPhone Upgrade Program work? I'm really not sure whether this is really on-topic, but here goes...

How does the iPhone Upgrade Program work?

I understand the information on the Apple site - I pay them monthly, no interest, with a small upfront payment &amp; after a year I can get a new phone. My contract, however, runs for 20 months.

Right.

So, I'm paying say 50 bucks/quid/shekels for 20 months, yet I get a new phone after 12 months.  

Where does that leave me?


I continue to pay off my existing contract, another 8 months at 50 'currencies'?
...and I also have to start paying for my new phone, so I'm now stumping up 100 'currencies' per month to have the new one &amp; an old one I no longer need?


Or...  


they take back the old phone &amp; let me off the last 8 months &amp; I just pay a new deal of 50 'currencies' for the new one, with a 20-month contract unless I repeat the same after another year?


or is there a  


?
Option 2 in your question is the correct one. In the "Getting the latest iPhone has never been easier" section of the upgrade program site you posted it says you have to pay 11 monthly payments (you might as well think of it as 12 months because the upfront payment is in essence your first month). So when you have paid the monthly installment 11 times, you have 2 options:


Turn in the phone for an upgrade while restarting both timers (the 11 monthly payments + 1st down payment and the 20 month full contract).
Continue paying for the phone until the 20 month contract is done and the phone is 100% yours.


The important thing here is that you are never paying for your old phone once you upgrade it.