Buying a phone outright vs on a plan

With high-quality smartphones costing a thousand dollars or more these days, it's worth asking what the best way to buy one is: outright or on a phone plan.

What's the difference?

Regardless of your contract length, buying a phone outright will give you more flexibility than a phone on a plan. Here are a few key points of difference.

Which is cheaper: outright or on a plan?

Buying a phone outright will be cheaper overall than buying one on a plan. Here's why:

1. Phone price is identical. Telstra will charge you the exact same price overall for a phone as another retailer. The cost is just spread out over a number of months.
2. Phones on a plan lock you in. With your new handset plan, you're stuck paying the provider's plan prices for 12, 24 or 36 months. These prices are paid on top of your monthly handset repayments. If you bought your phone outright, you can go for any plan on the market that you want.
3. Contract plan prices are uncompetitive. Companies like Telstra or Optus have higher prices than SIM-only options from smaller providers. 24 months on an uncompetitive plan will likely add up to much more than a different, competitive plan.

That being said, for some people, the extra you pay on Telstra, Optus or Vodafone plans may still be worth it in order to get access to a new phone right away. It's all a matter of your financial situation and how quickly you want the new phone.

How much can you save by buying outright?

Let's say you're buying an Apple iPhone 12. No matter how you buy it – on a plan or outright – it will cost you the RRP of $1,349. Therefore, the amount you save will be equivalent to the difference in plan prices.

Here's how 24 months on two different Telstra contract plans compare to 24 months with SIM-only plans from smaller providers.

• Save $720 by getting a contract with Telstra, but opting for less monthly data. This lets you keep the same instalment payment structure while paying less overall.
• Save $360 by buying the phone outright and going with smaller MVNO Belong. You'll still get the Telstra network and 40GB, but pay less overall with a more competitive plan.
• Save $941 by buying the phone outright with Moose's small data plan. If you don't need much data, this is a great option that will save you about 70% of the cost of the handset over 24 months, compared to a plan with Telstra. With these savings, you could almost afford to buy another phone once the two years are up.

Should I buy a phone outright or on a plan?

If you're still undecided, here are the pros and cons of entering into a contract for a new handset versus biting the bullet and getting it outright.

The right decision for you will depend on your financial circumstances and whether you're comfortable sticking with a particular provider for one to three years.

Frequently asked questions

• Do I have to stay with my provider for the full phone contract length?

  No, you don't. However, if you cancel or switch your phone plan from one provider to another, you'll typically have to pay the full remaining value of the device.

• Should I insure my new phone?

  With smartphones easily costing upwards of $1,000 these days, insurance for accidental loss or damage isn't a bad idea. This could allow you to repair or replace your phone for a significantly reduced cost if something bad happens to it.

  If you're considering getting phone insurance, you have a couple of options. Your phone may be covered by one of your existing insurance policies, or you might need to check out a specific phone insurance policy for it.