iPhone purchase vs contract

Should you buy your new premium smartphone outright or as an add-on cost to a two-year phone plan?

Pay now or pay (more) later

With the latest iPhone 8, iPhone X and Samsung Galaxy S9 models already available, super-keen smartphone users have a big decision about upgrading – but what's the smart way to buy your new smartphone? 

With the Australian dollar falling against the US dollar, local prices for these premium phones exceed $1000 for even the entry-level iPhone 8 models. The BYO phone plans offer generous GBs of data, so should you stump up the dollars to buy your next phone and have the luxury of maximising your plan with your chosen provider?

We crunch the numbers to help you decide if you should buy outright, or on a plan.

In this article:

Want to know if you should get an iPhone, Samsung Galaxy, Sony Xperia or Huawei? Check out our latest smartphone review.

Pros and cons

It's hard to resist the shiny lure of a the latest high-tech smartphone. As you'll see from our smartphone buying guide, they've got a lot to offer. So do you pay upfront or pay as you go? The answer isn't simple because there are pros and cons for both approaches. 

  • Buying outright can put a sizeable dent in your wallet, but at least you own the phone – it means you can switch to any carrier that has the cheapest phone plan and feel free to swap later down the track.
  • Buying on a plan makes it easy to put that new phone in your pocket without passing up your annual holiday, because it spreads the phone's cost over 24 months. The downside of this is that you're stuck with that carrier for the life of the contract.

There's no easy solution, but if you know the pros and cons of each approach you can pick the pathway that suits you best. Here's how they stack up.

Buy outright + SIM-only plan vs 24-month contract

First, look at the outright cost of the phone and then add in the cost of a SIM-only plan over 24 months. SIM-only plans are available from telcos including Telstra, Optus, Vodafone as well as mobile virtual network operators (MVNO) such as Aldi and Amaysim. It's not pre-paid or pay-as-you-go, although that's an option too.

There are examples below to give you some idea of the options to combine phone and SIM and compare with some plans. We've used these as a starting point for comparison, but there are other plans with more or less data to choose from. To apply this idea to your situation, look at how much data you need and compare plans at that price point. There will also be other considerations such as special deals, bonus offers and so on that will vary with your particular situation.

Cost of new iPhone and Samsung smartphones

  • iPhone 8 256GB: $1329
  • iPhone X 256GB: $1829
  • Samsung Galaxy S9 64GB: $1199
  • Samsung Galaxy Note 8 64GB: $1399

SIM-only plans

All the main telcos routinely launch attractive promotions (e.g. Amaysim, Optus and Vodafone offered a 30GB instead of 15GB and 6GB with limited times to sign up.) So keep an eye on the promotions available if you're close to ending your mobile plan.

  • Amaysim: $40 15GB data with unlimited phone calls, SMS/MMS. Unlimited standard calls to 10 countries (e.g. US, UK, NZ, China), 300 minutes to 22 countries.
  • Optus: $40 15GB data with unlimited phone calls, SMS/MMS, 300 international call minutes to select countries and data-free music streaming (12-month plan). 
  • Telstra: $49 15GB data with unlimited talk and SMS/MMS (12-month plan).
  • Vodafone: $40 6GB data with 500 minutes for standard international calls from Australia to selected countries (e.g. US, UK, NZ, China) and 100 minutes to other countries (12-month plan).
  • Virgin mobile: $32 15GB data with unlimited phone calls, SMS/MMS. $200 standard international calls to 10 countries (e.g. US, UK, NZ, China) data rollover, data-free music streaming (12-month plan).

Compare contract phone plans

Here's a sample of mid-range contract plans that include the phone, internet, calls and SMS allowance.

iPhone 8 256GB

  • Telstra ($99 phone plan): $129/month with 20GB data and unlimited talk and text, Foxtel Now starter pack, data-free music streaming. Unlimited standard calls to 15 countries (e.g. US, UK, NZ, China) on a 24-month contract. Minimum total $3096.
  • Optus ($85 phone plan): $107/month with 14GB data and unlimited talk and text, data-free music streaming. Up to 300 international minutes to 32 countries (e.g. US, UK, NZ, China) on a 24-month contract. Minimum total $2568.
  • Vodafone ($60 phone plan): $115/month with 40GB data and 200 minutes for standard international calls to Zone 1 countries and 200 minutes to Zone 2 countries.
  • Virgin Mobile ($80 phone plan): $97/month with 16GB data and unlimited standard national calls and text, $300 standard international calls and unlimited international calls to some countries including UK, US, NZ and China. Text data rollover, data-free music streaming.

Samsung Galaxy Note 8 64GB

  • Optus ($80 phone plan): $91/month with 10GB data and unlimited talk, text and $300 for international calls and text on a 24-month contract. Minimum total $2184. 
  • Telstra ($99 phone plan): $134/month with 20GB data and unlimited talk and text, plus data-free music streaming on a 24-month contract. Minimum total $2976.
  • Vodafone ($50 Red plan): $108/month with 16GB data and unlimited talk and text, 1000 minute on international calls to Zone 1 countries (e.g. US and UK), 150 minutes to Zone 2 countries on a 24-month contract. Minimum total $1449.
  • Virgin Mobile ($70 phone plan): $83/month with 9GB data and unlimited talk, text and $300 for international calls and text, data rollover, data-free music streaming
    on a 24-month contract. Minimum total $1992.

The verdict

Your decision may come down to upfront cost vs data value when deciding between buying a phone outright or opting for a phone on a contract. 

It can often be better value to buy a phone outright because SIM-only plans tend to have more data and phone allowances, plus there's always the option to switch for a better deal, but it involves a significant upfront cost. 

The plan cost may be a little less over the two-year life of the contract, but includes less data value.

Reasons to buy a phone outright:

  • Can re-sell and upgrade after 12 months.
  • Freedom to shop around for a SIM-only plan with more or less data and phone to suit your usage.
  • Not locked to one provider so can swap SIMs for travel.
  • Freedom to change providers.
  • But: Must find the money for upfront cost or use potentially expensive finance or loan.

Reasons to go on contract:

  • No need to pay for the phone upfront.
  • Get discounts for bundling other services such as internet or phone phone.
  • Bonus offers such as free streaming deals.
  • Warranty coverage for the life of the contract (check with provider).
  • Can include damage insurance from the provider (extra cost).
  • But: Locked to that network for 24 months.

Over to you

We invite you to share you experiences in the comments to help others who are weighing up their options. 

  • What have you chosen?

  • Have you found a good deal?

  • How did you make the choice?

  • What are you looking for with your next phone or plan?

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