Contract Phones Versus Outright Purchase: Which Is Best For You?

Coming to the end of a mobile phone contract is exciting and nerve-racking. You’ll soon be able to acquire a new phone, but should you jump on the contract bandwagon again? All this week, we’ll be looking at how to make a contract changeover work for you, starting with the obvious question: should you sign up for a contract again or purchase a phone outright?

Phone picture from Shutterstock

Let’s begin with an obvious but often-ignored point: there is no single answer to this question that is right for everyone. If you’re determined to regularly change phones, a contract deal will never make sense. If you’re looking to minimise up-front spending, contract is the only way to go. And there are many other variables to consider. Rather than offering blanket rules, we’re going to highlight the benefits and downsides of each approach, and leave the final decision up to you.

Contract deals in Australia typically run for 24 months. Vodafone offers 12-month deals, as does Optus under some circumstances, but the handset charges are so high that the total cost is often similar to signing up for a 24-month deal but without the benefit of that extra year’s actual call charges. As such, we don’t generally recommend them.

Contract Phones: The Benefits

No big up-front spend

This is why most people sign up for a contract. A modern smartphone will invariably set you back $600 or more, and not everyone has ready access to that kind of money. Paying a fixed monthly fee makes financial planning easier.

You can save money overall

If you’re already paying $60 a month for your mobile phone bill anyway, then getting a handset thrown in at no extra charge, or for an extra $10 a month, is going to look like a good deal. It won’t always actually be a good deal: many people don’t utilise anywhere near the maximum inclusions on their phone and might easily be able to use a cheaper plan. However, the potential is certainly there.

You might score other bonuses

Mobile phone companies like to reward loyalty; if your mobile phone contract is with the same company that provides your landline and/or your internet service, you’ll often score a discount on your overall bill.

No-argument warranty coverage

Australian consumer law is beautifully clear on this point: if a phone company signs you up for a two-year contract and includes a phone, you can expect that phone to work for the life of that contract. Any mechanical or performance faults have to be addressed. In general terms, that would also be the case with an outright buy phone, but consumer law doesn’t actually define a “reasonable period” for the phone to work for a standalone purchase, so you’ll have to argue harder. With the two-year contract, that question isn’t going to arise. (Note that this doesn’t cover accidental damage, so it still pays to be careful with your precious handset.)

Contract Phones: The Downsides

You’re stuck with the same phone for two years

Buying on contract will not give you the latest and greatest phone for long. With smartphone upgrade cycles measured in six months or less these days, your new pride and joy will seem like a positive dinosaur by the time your current contract ends. (That doesn’t mean it won’t be a useful device; it just won’t have that shiny patina of newness. Some people won’t care about that.)

You’re stuck with the same network for two years

This can be an annoying trap if you move house or change jobs and discover that your favoured network is essentially non-existent in your new residence or workplace. That’s annoying, but you’re unlikely to get out of your contract because of it.

Your phone will be network locked

Network locking means you can’t utilise a SIM from any provider other than your original supplier. That’s a potentially expensive nuisance if you head overseas and want to use a cheap local SIM for calls or data.

Buying Outright: The Benefits

You can upgrade whenever you like

Owning your own handset makes it easy to change phones whenever the fancy takes you. If you keep your phone in good condition and preserve the original packaging, you can potentially sell it second-hand and reclaim a high proportion of its value.

No network lock

If you want to change providers, either locally or overseas, you can simply swap SIMs and get on with it.

Buying Outright: The Downsides

You have to cough up the cash up-front

Fact: not everyone wants to spend close to a grand to buy a new phone when there are other alternatives available.

It can cost you more

If you buy your own phone but then sign up for a costlier contract or month-to-month plan, you might end up paying more than if you had been on contract. You’ll generally do better sticking to a cheaper pay-as-you-go (PAYG) plan, but that isn’t always an option depending on your network choice.

As that last point makes clear, the value of going outright or choosing a contract can depend on the exact cost of the contract. Tomorrow, we’ll look at all the contract phone plans available from major carriers in Australia.

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