Our guide can help you get to grips with mobile phone contracts, helping you make an informed decision and get the right phone plan for your needs.
By Laura Rettie, Personal Finance Journalist.
It's sad but true - for the vast majority of us our lives revolve around our mobile phones - we use them for everything nowadays. But how do you get the best deal on a mobile contract? And is a contract the cheapest option for you?
A mobile phone contract is an agreement between you and a service provider, where you pay an agreed amount of money each month in return for minutes, texts and data.
Phone contracts also allow you to purchase or upgrade to a new phone. You can choose to pay off your phone over the course of your contract; which is included in your monthly payment.
Most mobile phone contracts are between 12 and 24 months, though there are some available for 36 months or even longer.
Because a mobile phone contract is a credit agreement, you must be 18 or over to have one and the provider will perform a credit check when you apply.
Typically people get mobile phone contracts so they can have the latest phone without having to fork out the full cost of it upfront.
Another reason people get mobile phone contracts is because they offer better deals on minutes, texts and data than pay-as-you-go SIM cards.
Mobile phone contracts can help you to budget because you know exactly how much you’ll be charged each month, as long as you don’t go over your agreed usage.
Whether or not you should get a mobile phone contract will depend on your own circumstances, like how important having the newest phone is to you and how much you use your mobile phone.
If you can afford to buy the phone you want outright, it may be cheaper for you to opt for a SIM-only contract, where you pay monthly for a set amount of minutes, texts and data, but not for the handset itself.
Typically this works out as the cheapest option overall, because you can often end up paying more for a handset than it’s worth with a contract over 24-36 months.
When looking for a new phone contract, think about what you need - are you someone who uses up your data quickkly by using social media lots when you’re on the go?
If so, you may want to look for unlimited data. If you’re always connected to WiFi, you may not need very much data at all.
Are you likely to need to use your phone abroad? If so, check the network's roaming charges.
Since Brexit, some phone networks have reintroduced roaming charges inside the EU. Using your phone outside the EU can be even more costly.
So if you’re a frequent traveler, make sure you choose a provider whose roaming charges suit your needs.
Many network providers state in their terms and conditions that they can increase the price of a contract every year, and you’ll often see an annual increase of around 5-7%.
Whilst this may not seem like a significant rise, 7% of £55 is £3.85. This means the cost of your phone contract could rise quite a bit during the term, especially if you opt for a longer-term contract.
Some providers won’t have these price rises in their contracts, so do your research before you choose a contract. Some providers will give you 30 days to switch to another provider if you’re unhappy with the price increases.
This will largely depend on the phone you have your eye on, and checking frequently for deals.
In most cases, it’s cheaper to buy a handset outright rather than signing up for a lenghty contract. However, this isn’t always the case; if a provider has an offer including a free subscription or another item such as headphones, it could be better value to take out a contract.
It’s a good idea to do some research and calculate the cost of the handset over the duration of the contract and compare it to the cost of buying the handset upfront. Most websites will tell you the total cost you’ll pay for the phone without your data plan.
The reason that it can be more expensive to pay for the phone with a contract is because it’s a form of credit; you’re essentially borrowing the money to pay for the phone and paying it back over the course of your contract. So just like borrowing money with a loan or credit card, you’ll often be charged interest by your mobile phone contract provider.
Sometimes, when you take out a phone contract, you will be asked to pay an upfront lump sum, as well as your first monthly payment. This usually happens when you choose a newer, more expensive phone.
Not all contracts will require you to pay anything upfront, and most often, you have the choice to pay a lump sum upfront to bring down the monthly cost of the phone.
The more you pay upfront, the lower your monthly repayments. There are several reasons you might choose to do this; for instance, if you’re about to apply for a mortgage, you’ll want your monthly outgoings to be as low as possible.
Whilst you might not be able to afford to pay for the whole phone upfront, paying a chunk of the total cost of the phone off at the start of your contract can bring our monthly repayments down significantly.
With mobile phone contracts, you pay monthly for your handset, as well as minutes, texts and data.
With SIM-only plans, you’re only getting the SIM with the monthly allowance of minutes, texts and data, you won’t get a phone included with a SIM-only contract.
You can choose to put a new SIM in your existing phone, or if you’ve bought a new phone outright, you may choose to sign up for a SIM-only contract.
Mobile phone contracts are one of the most popular ways for people to afford a new mobile phone. But knowing whether you’re getting a good deal is not always straightforward.
Work out how many minutes, texts and data you’ll use on average each month. If you go over your agreed amount, it can cost you dearly. Use a comparison site to compare different deals on the amount you predict you’ll use.
If a deal includes a subscription or extra item, you can include the amount you’ll save in the contract.
For example, let’s say you’re comparing two mobile phone contracts, both 12 months long, with the same tariff and phone.
At first glance, option B is cheaper, but you pay £10 monthly for Spotify; you’ll save £5 a month by choosing option A. If you don’t use Spotify, or already have it, option B will be the better option for you.
You’ll also want to research how much signal your provider has in your area. Certain networks are limited in particular spots of the country, so it’s a good idea to check how much signal you can get in the areas you live and work in, so you don’t wind up paying for a phone you often can’t use.
You don’t technically own a mobile phone if you’ve taken it out on contract until you’ve reached the end of the contract and have paid your monthly repayment in full each month. At the end of a contract you’ll then become the official owner of the phone.
If you want to cancel your contract part way through, you’ll typically have to pay off at least the remaining cost of the phone, which could be costly, depending on how far through the contract you are. You may be better off sticking with your current contract.
When you apply for a mobile phone contract, which includes a new phone, the provider will typically perform a credit check. This is because paying monthly for the cost of the mobile phone means you’re entering into a credit agreement.
Just like when you’re applying for a loan or credit card, a credit check is required to find out what type of borrower you’ve been in the past. If you have a history of not paying back credit or missing payments, you’re less likely to be offered a mobile phone contract.
You may still be able to get a mobile phone contract of you have a bad credit score, but you might not be able to get the newest handset and may have to opt for a cheaper phone.
If you’re turned down for a mobile phone contract, you may have to stick to a pay-as-you-go SIM and save up if you want a new handset. You could also work on improving your credit score before applying for a phone contract.
Your provider will let you know when you’re coming to the end of your contract; they have to do this by law. They’ll also give you a few options of what to do next, such as;
If you don’t do anything, don’t worry, your phone won’t suddenly stop working. You’ll simply keep paying your monthly amount and receive the same amount of minutes, texts and data.
It’s a good idea not to let your existing contract roll over without reviewing it annually to make sure you’re not paying more than you need to for the amount of data, texts and minutes you’re using.
Before you upgrade to a new phone, it's a good idea to do your research to see if you can find a better deal elsewhere. If you do find a better deal, it’s always worth seeing if your current provider would be willing to match it before you decide to move providers.
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.
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We're on a mission to improve the finances of the nation by helping you to spend wisely and save money
