Contract vs SIM-only: Are you paying too much for your smartphone?

You have two options when picking up a brand new smartphone. Firstly, you can buy a smartphone on a lengthy monthly contract, where you’re ‘locked in’ for a specific period of time. With this option, you’re paying off the handset at the same time as paying for the service you use, so the cost of the phone is incorporated into the monthly cost.

Your second choice is to simply buy a smartphone outright, then pay for a SIM-only contract or pay-as-you-go SIM. If you follow this route, your monthly bill is only for the minutes, data and texts that you use as you already own the handset.

Here we look at both options, by taking into account the total cost of ownership of your mobile phone and contract – and giving you some straightforward advice on how to get the cheapest deals.

Contract vs SIM-only: Are you being overchanged for your smartphone?

Mobile phone networks are increasingly coming under fire for the way in which they sell phone contracts, with many overcharging customers. Research from the Citizens Advice Bureau revealed that millions of people are being charged for phones they’ve already paid off. This is because they continue to pay for pricey contracts despite already having paid off the cost of their phone over a 12- or 24-month period.

When buying a phone on a contract, you’re essentially paying for two separate elements – a monthly cost for the phone and a monthly cost of your data usage. Most mobile phone companies don’t offer a clear distinction between the handset cost and the cost of the service. This is why it’s important to renegotiate your contract, see if you can upgrade your phone to a newer model or even switch to a SIM-only contract if you’re still happy with the handset you have.

With all mobile phone contracts, once the handset cost is paid off at the end of your contract, you're then free to switch to a different deal or even sell your old handset and use the money to pay towards a new one.

There are some benefits to choosing a contract phone. One is that you don’t have to pay for the full cost of the phone upfront – which is often hundreds, if not thousands, of pounds. Handing over this much money in one go simply isn’t an option for some people, so length phone contracts are sometimes a necessity, rather than a choice.

To give you a better idea about how much you can expect to pay on contract rather than SIM-only, we’ve looked at the contract prices for the premium iPhone Xs and the budget Samsung Galaxy A40 on EE, Three and Tesco Mobile. Alongside this, we’ve compared the cost of the respective networks SIM-only deals when buying phones outright from Carphone Warehouse.

The amount of data you get on a contract and SIM-only deal often varies, so we’ve tried to keep the amounts as similar as possible for the most accurate comparison.

On the surface, it’s hard to tell which deals offer the best value for money. However, once you’ve done the maths, these comparisons show that a SIM-only deal works out significantly cheaper over a 24-month period. With the iPhone Xs, you can save as much as £400 by purchasing the phone outright, while the savings on the budget Galaxy A40 are around the £100 in most cases – not quite as substantial, but it is a much cheaper handset.

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Likewise, if you’re not fussed about owning the latest and greatest smartphone, then buying an older model outright and opting for a cheaper SIM-only deal will save you a lot of money.

Other advantages to buying SIM-free

There are several other advantages to buying a handset outright. For starters, the smartphone will be unlocked, so you can use a SIM from any network. This makes it easier to change networks if you find a better deal and it’s also handy if you’re travelling abroad and want to use an alternative SIM to save money on calls and data.

SIM-only contracts are also generally shorter –12 months rather than 24 – and you can even opt for a rolling monthly contract, so you’ll always be able to switch to the best deal. This gives you more flexibility and ties you into a network for fewer months.

Contract vs SIM-only: Verdict

The above comparisons show that the easiest way to keep the total cost of ownership down is to buy your phone outright and choose a SIM-only contract. However, you can also see that the amount you save can vary considerably depending on the network provider and type of phone you choose.

If you’re not considering buying either of the phones we’ve compared, it’s easy to work out your own total cost of ownership on the phone you want. Simply multiply the monthly cost by 24 months, then add any upfront phone costs to this figure.

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Of course, buying a phone outright isn’t an option for everyone. Perhaps you want to switch to the latest phone after two years or are unable to pay upfront for a SIM-free smartphone. If that’s the case – don’t fret – you can still find yourself the best deal by working out the total cost of ownership for each network.