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.


Comments

    Don't forget that if you are purchasing a phone through a provider that you can often elect to insure you handset (for a price of course) for accidental loss, damage or theft!

    I want the #HTCOne for its: Design

      You can do this through any insurance firm and it will be significantly cheaper than through your provider.

      Theft can be pretty well insured by installing a couple anti-theft apps, such as Cerberus. It's very hard to get off if you don't really know what you're doing, and can give pictures, GPS, IP, etc. More than enough for the police, if they can be bothered.

      I want the #HTCOne for its: Camera Quality

        However Telco Insurance for $9-$12 a month gives you a replacement mobile or a newer mobile with a minor upgrade fee if you lose, break, flush, step, smash, have stolen......

        I have used it once, I had an older Samsung Galaxy S and upgraded to a HTC OneX last year when I lost it in a supermarket car park. (Ever since then I have loved HTC over the Galaxy range)

        Cerberus and other apps won't get your phone back all the time, it may help locate it, although it could be in IRAN even haha...But insurance is pretty painless, cheap(ish) and quick.

        I want the #HTCOne for its: Design

        (tried ticking box but no drop down menu popped up for me to chose, so hope this counts)

      A lot of people overlook the $200-$300 premium when replacing a handset through a carriers insurance (Optus specifically). Sometimes it's just better to not have it

    You right about the pros/cons .. it all comes down to the purchases's mobile spending .. and how much of a technology pioneer!! for me . I spend $80 a month on average.. so going on a plan with new phone every 2 years is good enough. Incremental evolution of new release phones every year don't get me that excited.. but once every 2 years? Big enough upgrade to get excited again!

    I want the #HTCOne for its: Camera Quality

    But MVNOs are so much less expensive than PAYG. I would be tempted to shell out up-front in future for a shiny device having already moved to an MVNO.

    I want the #HTCOne for its: Design

    I have for a long time now bought my phones upfront, it has given me the freedom to choose my plan to suits my needs. Usually saving money on the plan as well. Even more so now with MVNO companies like aldi and kogan using the telstra 3G network, so I get greater coverage without paying the Tel$tra price. I know that you dont have access to the next G network but im OK with that for the price.

    As for having to fork out the upfront cost, there are planty of online shops like Mobicity that offer phones for less than what you would pay in store and still offer Australian Warrenties. Also you can make use of credit cards that have intrest free periods (like 6 months for purchases over X amount of dollers) to break down the large "almost a thousand dollar" phone into more a managable amount per month.

    I want the #HTCOne for its: Design

    Last edited 06/05/13 10:12 am

    IMHO the absolute best android combo for best bang for buck and quality is: Telstra Prepaid $30 Cap Encore + Galaxy Nexus/Nexus 4
    -$250 Credit
    -400 MB (+900MB using pluspack)
    -Unlimited talk from 6pm-6am

    #HTCOne

    I want the #HTCOne for its: Design

      vaya: $17.60 for 1.5 GB and $650 talk time. Beat that.

      I'm grandfathered in at $11 for the same deal, Imma go off bragging in the streets now :P

      I want the #HTCOne for its: Design

      Last edited 06/05/13 10:53 am

        Went with Vaya recently as I already had a handset and the price, as you mention is amazing.

        Got very pissed off at them very quickly though - they dropped their prices from 22 to 17.50 like two days after I signed up and refused to offer me the same deal (despite my argument that I could cancel and sign up again and get it anyway). they also dropped off the face of the earth for a full day with no data connection at all anywhere and no answer on their service line. And I had massive issues with their APN setings they provided constantly being declined by Optus and causing my phone to drain its battery constantly pinging the network.

        Would have loved for it to have worked out - 17.50 for 1.5GB 4G and $650 is incredible with no contract term. In the end I went to Voda (hoping their 4G launch works out) and got a phone for the wife in the deal.

        I want the #HTCOne for its: Design (not sure if this is working for replies so pasting in manually)

          Funny, I've had zero problems with them, and living near a cell tower my tethered connection is sometimes faster than my shitty ADSL.

          It is annoying that A) you can't upgrade or downgrade plans and B) their customer service takes an hour to get through to. But I've only had to call them once.

          But for me, the connectivity has been excellent. As excellent as Optus connectivity can be (ie, I get almost nothing on the train between Penrith and Parramatta, WTF?) But I've never had any outages...

          I want the #HTCOne for its: Design

            Vaya is great value. The only issues are the data session issue (apparently its making a big difference), inability to easily change plan and the possibility to accrue excess charges (at a reasonable 4cpm).

              and the possibility to accrue excess charges (at a reasonable 4cpm).

              On my plan, if I exceed my data, it just cuts it off..which I far prefer.

        Yep, this is my plan.

        Nexus 4 + $11 Vaya Flexi Plan (not the new 4G plans). Outright purchase averaged over 24 months gives me 1.5Gb data and $500 worth of calls for $27.63/month. I can't remember seeing any post-paid contracts that give you that much allowance and the latest phone for less than $30/month.

        I just got that same plan. I was switching from a similar plan with TPG which is only $14.99 a month if you also have broadband with them (as I do), but Vaya has 4G access and TPG does not.

        That's the missing Buying Outright: Upside. It can be (and should be!) cheaper overall when you take into account the ability to play $15-20 a month with a reseller like TPG or Vaya instead of $50-60+ per month for similar packages.

        I want the #HTCOne for its: Zoe Photo App

      This. The 400 MB included data looks pathetically small, but the plus packs are the killer here. I switched to this arrangement after getting my Nexus 4, and I end up with roughly the same amount of included calls and data as my previous Vodafone postpaid plan, but for 40% less money, and with rock solid reception and download speeds that rarely dip below 12 mbps.

    I'm a big fan of buying upfront but I do get tempted when someone waves a shiny new phone in my face for free. Still getting hit up on the plans is a killer. I think the pricing of the nexus 4 was designed to suit ppl who wanted a highend(ish) phone upfront and it may start a trend . Maybe Motorola will be the aforddable , but outright company in the future. Of course winning a phone is the best of all possible solutions...just saying

    I want the #HTCOne for its: Design

    I have been on contract for ages but I always pine for the simplicity of being on prepaid. Honestly considering just saving the money for the next phone I get and buying it outright.

    I want the #HTCOne for its: Beats Audio

    With many of the major telcos struggling to maintain their profit, getting into contracts have become a less attractive options. On top of that, the telcos are now a lot of month-to-month no-contracts with comparable pricings as well as wholesale networks (Kogan, Aldi Mobile) that use the same networks but doesn't burn your pocket.

    I still prefer buying outright over contract. First, some of us have the options to claim the GST component of the purchase when travelling overseas within the defined period, so that's an extra saving already. Also, if you end up with prepaid, you are excluding yourself from any possible bill shock and possibly even more savings when buying recharge vouchers at discounted rates (Woolworths and Coles regularly have rebates for recharges as well as earning you points -- and there had been many occasions where Paypal gives you rebate for recharging online).

    It all adds up in the long run.

    I want the #HTCOne for its: Design

      I think having to remember to recharge would be a killer for me. My plan is big enough to never get bill shock (I'm still not sure how people manage that), and you can always track your usage.

      There have been a lot of changes to telcos lately with players like Kogan entering the market so it will be interesting to see what happens in the long run.
      I think it's way too early to switch to Kogan, and hopefully companies like that will drive competition.

      Also, someone correct me if I'm wrong but I believe technically, if you claim duty free on something you take out of the country, you are supposed to pay that duty when you bring it back into the country.
      It's obviously impossible to police and enforce, but I think that's how it works. Or how it's supposed to work. Personally that's probably not a problem, but if your doing that through a business you might have some issues.

      I want the #HTCOne for its: Design

    For some reason, the cost of phone contracts seems to be on the rise, eg a few years ago, you could get the latest top line handset for a $49 contract on Telstra. However, now the HTC One is going for $70/month on Telstra, which includes $10 monthly handset repayments. Yet the cost of the handsets outright is still the same as its ever been. Why is this?

    Best solution? Once your contract expires, just purchase another handset outright and keep paying the same monthly contract.

    I want the #HTCOne for its: Screen

    On a couple of occasions Ive bought the phone outright rather than going on a contract.

    Reasons being having to spend more on the contract over the 24months period was more costly than buying it out right and remaining on my lower priced contract, and the other purely because I wanted a phone I thought I wouldnt like. for example the lumia 920. So I didnt have to be locked in and paying for 24 months for a phone i dont enjoy.

    I want the #HTCOne for its: Screen

    I am waiting for my contract to end at Telstra before I port my number to Kogan. I have already got a test sim card to try the network and to check internet speed access. For $29 a month, there is no better deal in the marketplace that I have been able to find.

     

    I am currently paying $79 a month with telstra and the only difference I get is that it includes 4g network, something that I disable purely to save battery.

     

    Also as someone that loves to buy their phones outright, ( I like to have a new phone, I know I am obsessed) going on a contract purely to get a "Subsidised" mobile phone doesn't apply. When you do the maths, and figure out that amount that you would spend if you went with Kogan and bought a phone outright for a 24 month period say a samsung galaxy 4 it works out around 400 cheaper. (Assumed a telstra 80 plan with a Samsung galaxy 4 or buying a samsung galaxy 4 outright for $800.

     

    You just have to decide if you need things like 4g and this will make the decision for you

    I want the #HTCOne for its: Camera Quality

    Last edited 06/05/13 10:42 am

    I got a HTC Sensation XE on contract but after a few months started to dislike it. Sold it on ebay for $300 and bought a Galaxy Nexus for $300. Worked out well for me. I am still on my contract.

    I want the #HTCOne for its: Design

    Last edited 06/05/13 10:42 am

    if you're a heavy user then a contract is the only way to go.. i mean, sure buy a phone outright for $800.. you still have to pay for the calls and texts.. company's make the deal so sweet chucking in a phone for so cheap (2 years ago, the S2 was an extra 5 dollars on top of the 50 dollar plan, $5x24months = $120)

    ..after being on a plan for 2 years (with the Samsung Gs2) i'm confident i'm going to renew in a months time. i mean, it's not like i'm stuck with the phone.. i can put my sim in another unlocked phone!

    I want the #HTCOne for its: Design

    The nexus 4 may redefine the market for contract free phones simply because of the low entry price.

    I've always been into contracts for this sort of thing.
    Firstly, at least until the last few years, Telstra was the only good network (speed and coverage wise) and you always paid more for that. I agree that their phone prices were outrageous but they are getting more and more competitive now. I agree that being locked into something like Vodafail is annoying (I've been there), but I'm at a stage now where I'm happy to pay the extra price for reliability.

    As for the upgrade thing... I don't think that's much of an argument.
    A contract does have the benefit of giving you a new phone every 2 years. If you want to upgrade sooner that's your choice and your money. I know I couldn't afford a new $800 phone every 6 -12 months, even if I was paying $30 per month instead of $60.
    And realistically, nothing is stopping you from selling your "contracted" phone and buying a new one. Yes you'll still have your monthly repayments, but that's what you signed up for so it's not exactly a shock.
    Realistically over 24 months on a $60 plan, my Galaxy S3 costs me $144. That's a fair bit cheaper than buying something outright.
    If you're paying $30 over 24 months, that's $720 less, and including $144 for the handset that's a saving of $864. That's pretty close to the price of an outright flagship phone. As mentioned before, you would have to fork that out up front.

    Also I'm not sure how it is with other carriers but telstra doesn't network lock their phones any more, so that's a non-issue.

    I couldn't imagine needing to change my plans often, and you can usually renegotiate things anyway like if you get a new job or something. I think pre-paid is the way to go for light users or those who really need to change things up all the time.
    Other than that I think the high included data and a new phone every 2 years should suit most medium - heavy users.
    Obviously everything depends on your personal circumstance, but I've always found 2 year plans work for me.

    I find it odd how some people sit on the same plan for 5 years and still use their 5 year old phone... Pro-tip, if someone gives you something for free every 2 years... take it. You can always sell the new hand set for $700 on ebay and keep using your old phone. That's where contracts can be very very enticing. You can potentially pay off 12 months of your contract by selling the handset you get with it.

    I want the #HTCOne for its: Design

    Two year contract with an outright purchase every alternate two years works best for me. I get the benefits of contract and a new handset every year. It is the best of both worlds.

    Alternatively, you could also get two, two year contracts alternating every year.

    I want the #HTCOne for its: Design

    Buying a phone outright also means you can choose a much cheaper alternative of who is your network provider. If you go with Internode (who doesn't provide mobile phones, only service provider) you can effectively get what a telstra or optus plan offers for 50 or 60$ for $20. Over a 24 month contract this a big money saver even factorying in your outright purchase.

    I want the #HTCOne for its: Screen

    I want the #HTCOne for its: Screen

    You're not exactly forced to stick with that phone for the life of the contract; yeah you'll be paying for that phone either way, but there's no reason you can't buy a phone if something happens and pop your SIM in that phone. I've got an iPhone 4S on contract until October but when I go away for music festivals etc I put the SIM in my old HTC Desire and take that instead. Obviously you are still forced to use that network for the 2 years, but not the phone itself.

    Also worth noting that there are plenty of great pre-paid deals these days too. The amount you can save each month compared to having a minimum spend on a contract could easily be put towards buying new phones. E.g. the minimum spend on my current Telstra contract each month is $72, but I could easily make do with the $50 per month for Telstra's pre-paid Cap Encore option, or considering that it also gives you free texts and calls between 6pm and 6am, even the $30 per month option could do. So I could save between $20-$40 each month, and I'd be able to buy a new phone outright in no time. Not to mention that would also mean I have the freedom to change networks as I please, if something better pops up on a rival network.

    I want the #HTCOne for its: Beats Audio

    When I bought my Galaxy SII two years ago, I'd been researching for months and knew it would be able to perform well for years. I'm a power-user when it comes to data, but I don't make all that many calls or texts. So for me, I got a more expensive, powerful phone on a much, much less expensive plan and the prices balanced out quite well.
    I found a good outright price online and compared that with what plans the major telco's were scheming to offer (this was before its Australian release).

    $700 up-front plus $20 shipping, and about $35 average (I've increased and decreased my pre-paid spending as needed) = $1560... equivalent to about $65 per month over 24 months. I had the SGSII in my hand weeks before its release on the Australian carriers, and the overall cost has been at worst, the same as a contract... or at best, cheaper than a contract if I'd signed up at its Australian release, and I've changed between TPG (month-to-month BYO), Optus (pre-paid) and Telstra (pre-paid).

    I want the #HTCOne for its: Design

    I bought a Samsung Galaxy S2 on gumtree for $200, about the going price.

    Unlocking was as simple as contacting Vodafone.

    Soon thereafter, I rooted it and installed the 4.2 Chameleon ROM on it. It works beautifully, no flaws and it's like they read my mind of every minor UI tweak I had always wanted. Literally, every item on my wish list is met in this new version. Plus a couple I didn't (panoramic pictures!!) I LOVE it. It's a couple version back, but with the latest version of JB it feels like a brand new relatively high end phone.

    I am paying $11 a month for 1.5GB and plenty of talk time on Vaya. No contract.

    I say, that deal is hard to beat.

    I want the #HTCOne for its: Camera Quality

    I personally find the contract option perfect for me. By the time the 2 year contract is up I'm ready to upgrade. Although there is nothing stopping you from buying a new phone while on contract if the funds allow.

    I want the #HTCOne for its: Design

    I have been with Telstra for a few years now and i often get bored if my handset. They let you pay out the handset and re-sign for a decent price, currently using an iPhone 5 since release and have been quoted $300 to re-sign. I could easily sell my iPhone 5 for $500-600, profit the $300 and pickup a new phone at no extra cost.

    I want the #HTCOne for its: BlinkFeed

    I bought my phone outright from telstra, the way phones are updated these days I dont see locking myself into a 2 year contract as a good idea.

    I want the #HTCOne for its: BlinkFeed

    I have been with Vodafone for 2 years but reception quality is terrible. During 2years, I bough 4 outright phones (IP4s,IP5, Lumia 920 and BB Z10) before I buy a new once I sold old once. This helps me upgrade to new phone without paying too much money.

    I want the #HTCOne for its: Design

    I agree with @si, locking yourself into a 2 year contract is a big ask. There seems to be improvements in both network and phones every year. In saying that I've always been on a contract but I see myself purchasing the phone outright from now on.

    I want the #HTCOne for its: Design

    I used to buy my phones outright and go prepaid but my feelings quickly changed with the Vodafone infinite cap for $45; this deal came out 2 years ago and is no longer available now.
    Now still on the same vodafone deal, I get all my phones on 1 year contracts giving me the ability to upgrade every year and I get the phones for at least half price of brand new, so when I sell it at the end of the year I can come out even or even up a few dollars.
    Example, first phone was a 32GB iPhone 4s bought on the plan for $40 a month extra on top of the $45 a month deal. I sold the phone for $530 brand new with the box a year later
    I then got an iphone 5 64GB for only $217 from vodafone and am currently paying that off one a 1 year deal at approx $17 a month on top of the $45 for the deal.
    Now sure you cant get the same $45 deal but a good way to do it would be to get the $60 plan
    with the s4 at $1104 total cost. You can easily knock them down to a cheaper per month price for the phone simply by telling them about kogan mobile's $299 deal for a 1 year contract. Lets say the total comes to $1000
    comparing the two, you'd have a difference of $700 due to kogan's $300 deal then if you sold the phone for about $400 in a years time the difference would be $300, but the following phone you get from vodafone next year would be substantially cheaper, providing your a good customer like me ;), and you would save money in the long term
    Now I know the plans are not exactly the same as kogan has more data and unlimited calls to anyone, but I have personally had added an extra 2gb of data just for calling and asking for it and comparing to kogans deal as well as an extra 30% off my bill for 6 months just for complaining about the service- even though it wasnt that bad.
    And I know everyone is saying vodafone sucks but in Perth its fairly good especially since they put in all the new upgrades.
    Food for thought :)

    I want the #HTCOne for its: Beats Audio

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