iPhone 8: Should you go on contract in Australia or buy outright?

If you're keen on Apple's shiny new iPhone 8 or iPhone 8 Plus in Australia, does it make more financial sense to opt for a contract, or buy the phone outright?

Apple has just opened up pre-orders for the Apple iPhone 8 and iPhone 8 Plus, as well as the freshly announced Apple Watch Series 3 and Apple TV 4K. At precisely the same time, Australia's largest telcos, Telstra, Optus, Vodafone and Virgin Mobile have also opened up pre-orders for the new phones, generally on 24-month contracts.

That means that if you're keen on Apple's new phones, you've got a choice to make, but which approach makes the most financial sense?

If you're more interested in the iPhone X, you'll need to cool your heels for a while, as that phone won't go on pre-sale until 27 October 2017, although Virgin has already announced its indicative pricing.

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$99 per month for 24 months

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All for use within Australia. Min cost $2,376 over 24 months when phone is returned in working order.

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Before we start, the practical reality is that there's no one absolute right answer that will suit everyone.

If the upfront cost of the phone is never going to be affordable for you, you should consider the best phone plan for your needs. The amount you'll end up paying for phone plus service will also depend on your usage needs, especially for data.

Buying outright (and comparing sensibly)

Apple's pricing for the 64GB and 256GB iPhone 8 and iPhone 8 Plus is already known. From that pricing, if you want to compare against a 24-month contract, you can calculate the effective cost of the phone by dividing its outright price by 24. Here's how that breaks down for each model:

One simple but important observation: if you do spot any plan that charges you more than that monthly figure for the handset on a 24-month plan, you're paying too much.

Still, the simple reality here is that you are going to need to pair up your outright phone with a plan of some sort. Buying outright gives you a lot of flexibility, because you can choose carriers and change whenever your contract status allows, including going on prepaid or month-to-month postpaid plans.

You can also more easily opt to sell the phone at any time if another handset, Apple or not, takes your fancy. Naturally, however, the downside is that you have to pay the full lump sum for the new phone upfront, as distinct from spreading it out over a longer term, as is available on any phone contract.

Contract with Telstra, Optus or Virgin Mobile: What handset savings can you make?

I've grouped Telstra, Optus and Virgin Mobile together, because they all still operate their iPhone 8 and iPhone 8 contracts on 24-month terms with lower handset repayments on higher plan tiers. Essentially speaking, the more you're willing to pay for phone service, the less you get slugged for handset repayments, although of course you're still handing over large sums of money doing so.

For example, here's the breakdown of plan and effective handset costs for the lowest-cost iPhone 8 64GB plan from Telstra, Virgin Mobile and Optus:

The downside there is that these are plans with very low data allowances. Virgin Mobile and Telstra give you 2GB per month, while Optus only comes to the iPhone party with a paltry 1GB of data to use per month. If you're buying a premium phone like the iPhone 8, it doesn't make a lot of sense to lowball your data allowance.

What about in the middle ground? Here's how the plans compare using the iPhone 8 256GB as a reference:

Here the higher cost of the phone is reflected in a higher saving, and you step into territories where you can get more data. With Virgin Mobile you'll score 9GB per month, with Optus you'll get 10GB and with Telstra you'll get 20GB, although its middle tier L plan is the most expensive monthly of the 3 compared providers. You also get additional contract bonuses from Optus and Telstra with their associated entertainment packages at those tiers, as well as international calling minutes to use.

Finally, what if you go all out on your spend and get the best package from each provider? Here's what you'll save in handset costs over 24 months:

Yes, that's the same plan for Virgin in both cases, simply because it doesn't have a higher tier than its $100 plan right now. Still, there are some other major caveats with this last table.

Telstra's $199 premium plan will give you any phone you'd like, including the highest capacity iPhone 8 Plus, and well it should, given it costs $199 per month. That's literally double what Virgin Mobile wants for its top tier plan, so it's not much of a like-for like comparison. In data terms, both Optus and Telstra offer 100GB at top whack, while Virgin tops out at just 24GB.

So what happens if we dial Telstra back to Optus' $120 plan level? Telstra's XL plan is priced at $129 with 30GB of data, so it's the closest match:

Buying a plan with all the frills will cost you a fair sum over the 24 month period, but you'll get plenty of data, and plenty of extras, while minimising your overall contract handset repayments. If you know you're likely to use a lot of data and, for example, Telstra's 12-month free Foxtel Play deal appeals, then it may make more sense to opt for a contract.

Both Optus and Telstra offer leasing options that drop the overall cost of plans by an amount, which has some immediate hip pocket nerve appeal, but it's worth considering your usage and care of the phone for any lease plan. The upside is the saving, but you never own the handset at all, and have to return it at the end of the lease. If it's damaged in any significant way, the repair costs can easily dwarf the overall lease savings, so consider carefully before opting for these plans.

On contract with Vodafone

Vodafone's contract picture for the iPhone 8 and iPhone 8 Plus is an entirely different matter, because of the telco's recent decoupling of handsets from contract plans. In essence, Vodafone sells handsets with repayment terms over 12, 24 or 36 months, and then sells you a plan to go with them.

This does give them a potentially very low total minimum cost, because the minimum you'll pay is the total handset cost plus one month, after which you could cancel. The caveat here is that you can't keep paying off the phone over your agreed term, and would have to pay the remaining sum in one lump payment.

For what it's worth, if Apple does rapidly sell out of your favoured iPhone 8 or iPhone 8 Plus handset, one strategy could be to sign up for the lowest-cost Vodafone plan and a 12 month term, pay one month, cancel and pay out the remainder of the handset payments.

The downside of Vodafone's approach is that higher plan tiers don't make a lick of difference to the handset repayments, because they're totally divorced from those payments. There's no discount at higher prices, although Vodafone's handset repayments do involve very tiny discount against the standard Australian pricing:

Vodafone's plans are interesting as a result, because they become an effective middle ground solution between outright purchase and contract plan pricing.

You're paying more in handset repayment terms than you would with other carriers, but you've got a lot more flexibility to shift without notable penalty if you wish to, and you save a few cents off the retail price. If, for example, you want an iPhone 8 now but know you can't cover the upfront costs right away but could do so by Christmas, it's a decent way to score the handset early and then shift away when you can pay out the handset.

Want to compare all your iPhone 8 contract options? Our Mobile Phone finder can assist you. We've preselected for all iPhone 8 and iPhone 8 models and left the carrier open, but you can pick and choose by clicking on "modify results" below:

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