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To buy a mobile phone outright or on a plan?

By Megan Birot | 9 Apr 2019
6 min read

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.

How much can you save buying a mobile phone outright vs on plan?

Enough talking; let’s run the numbers.

Cost of Android handset outright versus post-paid plan

Mobile planOutright
ModelSamsung Galaxy S9 PrismSamsung Galaxy S9 Prism
Storage size64GB64GB
Cost per month$89$30
Contract period24 monthsNo contract ($1200 outright)
Talk timeUnlimitedUnlimited
Data allowance20GB20GB
Total cost$2,136[4]$1,920[5]

Savings: $216

Cost of Apple handset outright versus post-paid plan

ModeliPhone XRiPhone XR
Storage size64GB64GB
Cost per month$94$30
Contract period24 monthsNo contract ($1200 outright)
Talk timeUnlimitedUnlimited
Data allowance20GB20GB
Total cost$2,256[6]$1,920[7]

Savings: $336

N.B. Information compiled and accurate at March 2019.

What’s a SIM-only plan?

A SIM-only plan, also known as BYO phone plan, allows you to connect a SIM card, which will provide all your call, text and data services, to your provider’s network. It works like a standard lock-in mobile plan, but will cost you less because you’re not paying for a bundled phone. You just use the phone you already own (outright). SIM-only plans only work with phones that are not locked to a specific network, although handsets can be unlocked by carriers.

There are two types of SIM-only plans:

Postpaid/monthly: Offer an allowance for mobiles services (talk, text and data) for which you get billed every month. Your plan inclusions then re-start on the first day of your billing cycle. Many postpaid plans are only available on a 12-month contract.

Prepaid/pay as you go: Allow you to pay for your mobile service upfront, by recharging your account with money as you go. You can also cancel your prepaid plan without charge or change it anytime you top-up, depending on your needs.

Benefits of SIM-only plans

  • SIM-only plans can be cheaper than lock-in mobile contract plans. This is because you’re only paying for the SIM card (sometimes it’s even free) and the mobile service. You’re not paying off a new phone over 12 or 24 months.
  • It makes budgeting easier. You know how much you’re spending each month on your phone plan, as long as you don’t go over your monthly allowance. With prepaid it’s even easier since you pay for the service in advance, so there’s no nasty surprises at the end of the month. Are you looking to reach your budget goals? See our practical money tools.
  • There’s no commitment. With SIM-only plans you can choose your service provider and switch whenever you want. So if your plan is no longer competitive, you can cancel it and look for one that offers better value, although you may still incur exit fees.

[1] Australian Government Department of Communications and the Arts- The communications sector: recent trends and developments (2016).
[2] Australian Communications and Media Authority- Mobile upgrades: The real cost (2014).
[3] Australian Communications and Media Authority- Mobile upgrades: The real cost (2014).
[4] Telstra- Samsung (2019).
[5] Dodo- Mobile plans (2019).
[6] Telstra- iPhone (2019).
[7] Vodafone- Prepaid plans (2019).

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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.

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