Mobile phone leasing: How does it work?

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Save on your mobile contract by opting to lease your phone, but only if you can keep the phone in good condition.

What is mobile phone leasing?

On a standard mobile phone contract, a carrier hands you a phone and a SIM card for you to use and commit to using for the length of the contract, which is typically 24 months. You then owe the carrier, at the minimum, the amount stated in the contract plus any applicable handset repayment fees, depending on your choice of phone. This is paid off in monthly instalments based on your usage each month.

You own the phone under a standard mobile contract, but you must pay the carrier whatever the agreed handset repayment price is. If you want to break the contract early, you’ll most likely be asked to make all the remaining handset repayments on a pro rata basis to conclude the contract.

Mobile phone leases work in a similar manner, in that you’re handed a phone and SIM card to use at the start of a 24-month contract. The key difference is that you do not own the handset in question, but instead lease it from the carrier, who retains ownership. In return, your monthly total repayments are reduced from the full contract price.

How much can I save with a leased mobile phone?

Currently, only two carriers offer consumer mobile phone leasing in Australia. Telstra was the first to offer mobile leases, with Optus following more recently. Telstra and Optus offer mobile phone leasing with remarkably similar terms for a range of handsets. Telstra’s range (at the time of writing) is slightly larger than Optus's, but there’s a solid focus on premium handsets across both carriers.

The exact amount you can save varies slightly depending on the handset you choose and the base contract price you opt for, but the most you can save with either carrier on any given phone and plan combination is $10 per month. Therefore the maximum amount you can save over the contract term is $240.

Can I swap out my phone for another one?

Both Telstra and Optus do allow you to swap your leased phone out for a newer model after 12 months for a fixed $99 standard fee. However, you do end up on a new contract, which means that in effect you’ve leased one phone for 12 months and are then engaging in a fresh 24-month lease contract for your new handset. It's functionally the same deal as you'd get under Telstra's New Phone Feeling deal or Optus's New Phone Trade Up deal.

Saving up to $240 sounds great. What’s the catch?

The key factor to remember with a phone lease is that you never actually own the phone that you’re using, which can have some potential financial implications when your lease term is up, or if you decide to swap the phone out after 12 months. With a standard phone contract, when your contract term is up, you own the phone outright and can sell it, give it away or send it off for responsible recycling as suits your needs and mood.

With a phone lease, you’ve either got to arrange to buy the handset off the carrier, or hand it back to them. Both Telstra and Optus will allow you to continue leasing for a further six months once your contract is over, but unlike a standard contract where you can typically keep rolling over on a month-by-month basis, it's a hard six-month limit. As a result, the longest term you can possibly lease any handset for is 30 months.

If you do want to keep your handset, you can, but the carrier will charge you what they feel is a "fair market price". Given that most of the devices available for lease are premium phones to start with, that could prove somewhat costly, especially for iPhone devices that tend to hold their value over time. Because consumer mobile phone leases are relatively new there’s no real data available that shows what carriers are likely to demand for a phone at the end of the lease term.

If the phone is in fine working condition and you no longer want to keep it, you can always hand it back and conclude the contract. However, if there is some damage to the handset, you’ll be charged a repair price on the same terms as you would if you had swapped the phone out after 12 months. That means that a cracked screen will cost you $229, while a non-functional or otherwise damaged phone could cost you up to $499.

Are mobile phone leases worth it?

If you don't usually care about your phone after 24 months and you're mostly certain that you can keep the device in good working order over that time span, it’s a fine option to save yourself a not-inconsiderable $240 or so.

However, if your phones tend to only last you two years because they get bumped, cracked or broken, you might only save $11 in total over the term of the contract (a $240 maximum saving minus that $229 screen repair cost), or come out worse overall if the damage is more severe.

Image: Shutterstock

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