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.


    I switched from being on contract to buying a phone outright and paying by the month with Vaya. The savings every month meant that I paid off the handset in 7 months. Totally worth it.

    My wife however won't move from Telstra, so the pay by the month options are too expensive.

    Unless you're particularly attached to Telstra's network, a Vaya plan with an outright phone is pretty well guaranteed to save you money over a contract, especially if you're comfortable buying a grey-import device.

    As I use my mobile phone a little bit for work (the odd phone call when I'm out of the office), my work allow me to salary sacrifice my phone. So this makes buying a decent phone affordable (and the option to pay off over a time period). I'm with telstra, and I recharge on their encore prepaid plans, and when I get to the upper limit of $300, I switch to longlife, recharge to get long expiry, and then switch to simplicity for cheap txt and call rates, buy data packs until my $300 runs out, and I start the cycle again. I usually get 6 or so 'free' months. All in all, costs me about $25 per month for decent telstra coverage and 4G speeds once I've completed the cycle. A top of the line handset after salary sacrifice costs me about $340 ish, so basically I can get a new phone every year for what works out to be a total of $55 per month, which is the same cost of what I'll be paying for only one top of the line phone on a 2 year contract, if I stick with my phone longer, it gets cheaper. But it takes a bit of fiddling, which I'm happy to do, as prepaid gives me more flexibility.

    Last edited 06/05/13 11:09 am

    Great article guys, I'm currently getting close to the end of my contract with Tesltra and will be looking at getting an S4/HTC One to replace my iPhone.
    Hadn't heard of Vaya until today and looked into them, pretty good. We've got great Optus reception around here. In the grand scheme of things I'll be saving $46 on my bill per month if I go with Vaya and buy my handset up front. Add to this that Vaya don't think high data caps are worth $110 a month like Telstra...

      I decided to buy outright with my latest phone upgrade. I took a very risky gamble and got a cheap chinese knock-off from I settled on a Galaxy Note II copy that's sporting a quad core cortex A7, and 2 gig ram for about $250. I am very very pleased with the result. The screen is 720p and performs amazingly for the price. But buy at your own risk. i've heard of other people having bad experiences with this particular supplier. Do research on the exact specs of the phone you're buying.

      As for Vaya I use them and I am very pleased. I went for the $17 per month plan and i'm thinking of dropping down to the $11 per month plan cause I simply do not use my phone as much as I thought. If you don't mind the optus network Vaya is a great option. They also bill data in Kb used not Mb which stretches the 2gig a month data limit out quite a bit.

      Last edited 06/05/13 3:42 pm

        Actually, with regards to Vaya billing data, they recently changed it to MB from Kb; Vaya is now billing data in MB which currently presents a problem for some customers. If anyone can shed light on this issue that would help; all I heard is that Vaya plans to try and make arrangements around the situation by June.

        Back on topic, with the way phone prices are dropping over time (aside from Apple products), you could opt to get a phone that's about 6 months old (since release) for a relatively low price and sign up for a cheap network such as Vaya (in light of what I said above, Live Connected might be a better option for a network). This would be better than buying a really new phone outright soon after release date - you would be better off getting the newest phone on a contract.

        For example, the S4 is being sold for about $700 since a week after its release (down from the RRP of $900); wait a bit longer and it will be cheap enough to buy outright and put onto a BYO plan, making it more cost effective than any of the contracts the major networks are offering.

    Buying outright: The benefits

    You can usually get a much cheaper/better value deal on a prepaid plan than on a contract.

    Also, the Nexus N4 is from $370, clearly invalidating the "invariably $600 or more" claim. (Still a chunk of cash, but a lot less.)

    12 Month contracts now are fairly expensive.

    At the times I've gone on a 12 month contract it's worked out to be about the same spend for the handset repayments for the 12 months as it would of been to buy the phone outright.

    Thus I can change my phone every year without much additional spend over buying our right AND not forking out or getting locked in 24 month contract.

    Although with the current set of Contracts available it appears they're making 12 month contracts more expensive.

    I re-contracted with Telstra when I upgraded to the iPhone 5. Shortly after I re-constracted word was released that Kogan was about to start selling an unlimited service on the Telstra 3G network for $29 per month. I wasn't happy.

    Whilst the Telstra service provides me with LTE, I was already quite happy with the performance of Telstra's 3G network

    Note* I'm aware that Kogan doesn't have full access to the NextG network, however the wholesale telstra 3G network that Kogan does have access is quite adequate for me (my gf is using Kogan on her iPhone 5 and pulls down speeds close to the max of 7.2 Mbps)

    I've been buying phones outright and joining BYO plans.

    Worked out great since Dodo offered 2.5GB and $150 credit for $10 cap per month. They are discontinuing this offer though, and I need to look elsewhere.

    I don't know about the others, but there are no post paid Telstra phones that are network locked except the iPhone, which can be unlocked at any time at no cost - so this point is totally invalid.

    And for other network operators, well, it's usually trivial to network unlock most phones.

    I've always bought my phones outright just because the telco's I've been with have never sold the particular phone that I want.

    Outright for me is way cheaper. Happy with my smartphone and i pay $12 p/month on Live connected ($120 p/year Optus network). I might mention that the plan i have is no longer available, but there are many other 3rd party network resellers offering better value for money than the main big 3 Telcos. It makes sense unless you like Telstra??? :0

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