TO BUY A MOBILE PHONE OUTRIGHT OR ON A PLAN?
Aussies are a ‘techy’ bunch and for some that means always having the latest mobile phone on hand.
And, before you nab that shiny new handset you want to make sure you’re getting the best value possible for it. With so many phone plans and telco offers out there, it can be hard to tell the difference between a good and not-so-good deal.
So, is it better to buy a mobile phone outright or on a plan?
What is the difference between buying a mobile phone outright and plans?
Buying on a plan: It’s a lot like buying a car with a loan; you get to take the phone home and use it all you want. You just pay for it in monthly instalments over the course of your contract (usually 12 or 24 months) but you don’t own the phone until your contract has ended. During this period you also get a connection and a certain number of free calls or text messages per month. However, that means you’ll have to stay with the telecommunications provider you’ve signed up with and remain on the same mobile plan for the duration of your contract.
Buying outright: You pay for the full cost of the handset (phone) upfront. This means you own the phone as soon as you’ve handed the cash over and got your receipt. You then have the freedom to choose and change your telco provider and mobile plan as you please.
So, is it cheaper to buy a phone outright or on a plan?
Contrary to popular belief, telecommunications companies don’t just make money from selling phones. They also make profits from the products and services they provide through their network, amongst other things.1 So while getting a shiny new phone and paying for it over 24 months sounds like a good deal, it’s actually locking you into a contract for two years for which you may have to pay early termination fees and any outstanding phone repayments if you want out.2
Those fees may also apply if you want to switch to a different carrier and those can be quite hefty, particularly if you’re not far into your contract period. That’s why you should always read the terms and conditions of your contract and the critical information summary of your phone plan to make sure you know what you’re signing-up for.3
Meanwhile, you could actually save money by sidestepping a phone upgrade, buying a phone outright or just moving to a better plan once your phone is paid off and no longer under contract.
According to General Manager of Banking at Compare the Market Rod Attrill:
“Consumers tend to believe that they can save more money buying a phone on a plan because of handset subsidies and clever marketing offers from telco companies. While you do save money by paying nothing upfront, your telco provider could put you on an uncompetitive plan for 24 months as part of your contract,” Attrill said.
“You’ll essentially pay more to use your phone over that period.”
“However, if you bought your phone outright, you’d incur a bigger upfront cost, but you’d have the freedom to shop around between telco providers for SIM-only plans that give you better value for money. Buying a smartphone outright can be cheaper in the long run, compared to locking yourself into a two-year contract.”
But buying a phone outright isn’t for everyone. For example, if you like to sport the latest handset and are not fussed by higher monthly plan costs, then a mobile plan might suit you fine.
Written by Megan Birot
Megan considers herself a savvy saver. She aims to make finance fun and inspire people to make decisions best suited to their budget and lifestyle. Her number one tip is: “saving doesn’t have to be boring, get creative and reap the rewards.” Megan has a background in journalism and particularly loves to write about health and money. She hopes to one day pen a best-selling book but the topic is a well-guarded secret.