SIM-free phones vs. contract phones

Submitted by Abi on 7 November 2014 - 1:02pm

SIM-only has changed the way we think about mobile phone contracts. Traditional contracts are a useful way to get a brand new phone, often with minimal upfront costs, but they can tie you into a deal for up to two years. With fewer advances in smartphone technology, and the cost of phones reaching several hundred pounds, we’re keeping our devices long after our contract has ended. For those of us who own our phones, whether bought outright or at the end of your contract, SIM-only can offer a greater choice in affordability and flexibility. We take a look at how the two types of contract compare and show you how to work out which is the right one for you.

Choosing your phone 

Buying your phone on contract

For many of us the most important factor in a mobile contract is the new phone. Smartphones are expensive and with the latest iPhone 6 Plus costing an eye watering £619 it’s not just the screens that are bigger, the price tags have grown too. If your budget is small, or if you just don’t want to pay that much money upfront, then locking-in to a two year contract with a mobile phone included may be the best option for you. 

Buying your phone on finance or credit

However, compared to the average 24 month contract it can be significantly cheaper to buy your phone outright. If you don’t happen to have a spare £500 then you could consider buying your mobile on finance. This lets you pay for your phone in instalments, just as you would with a traditional mobile phone contract. Many manufacturers, including Apple, offer finance options and so do some networks, including giffgaff. Though you do pay interest on financed phones this can still work out cheaper than buying a phone on a contract with a network.  

Alternatively if your credit history is good, and you know you can make the repayments, then buying a new phone on a credit card with a 0% offer on purchases could save you money in the long run. Just make sure you clear your balance before the offer expires or you could be paying huge interest rates.

Choosing your deal

Better choice of deals with SIM-free

Networks often subsidise the cost of new phones and recoup their money by selling expensive contracts with big allowances to their customers. For premium smartphones the choice of deals available may be limited making it harder to choose a deal that’s right for you. This could mean you end up paying extra for allowances you won’t use. Similarly if you choose a deal with smaller allowances and a lower monthly repayment you’ll have to pay a higher upfront cost.

For example, Tesco Mobile iPhone 6 plans start with 3000 minutes and 3GB forcing you to buy a more expensive contract that is not much use if you only need a small amount of calls and data.

3000 minutes, 5000 texts and 3GB data £41 per month 

Whereas if you want to pay less per month with EE you'll need to pay £449 upfront - just £89 less than a buying SIM-free iPhone 6 direct from Apple.

500 minutes, unlimited texts, 500MB data £14.99 per month

+ £449 upfront cost for an iPhone 6

Without the cost of a phone included in the monthly payments SIM-only contracts are cheaper. But they can also offer greater choice because you can choose the deal that suits your budget and your usage instead of the deal the network wants you take. If you’re not sure how many calls, texts and data you need each month read our guide How to Check Your Mobile Usage.

If you have a poor credit rating then it’s much easier to get a SIM-only contract and some networks, like The People’s Operator, don’t even run credit checks. Making regularly monthly bill payments will help to build up your credit score and improve your chances of being accepted for a contract with a phone the next time you apply. Read our guide Why Mobile Phone Credit Checks Needn't be a Barrier to find out more.

Better choice of extras with contracts

Although most network perks like O2’s Priority and EE’s 2-for-1 cinema tickets are available to both SIM-only and phone contract customers there are some added extras that you won’t find on SIM tariffs; double speed 4G and inclusive European calls from EE for example.

If it’s the added extras that appeal to you then a contract with a phone might be right for you, but check the T&Cs because not all plans automatically come with these additions; Three’s feel-at-home and Vodafone’s entertainment packs are available for both SIM-only and phone customers, but only on particular contracts.

Flexibility vs. familiarity

Changing networks 

One of the biggest benefits to buying a SIM-free phone is that it is unlocked so you're not tied to any particular network. This means you have the flexibility to move to a different deal with another network if you see one that you like.

Typically contracts with phones last for two years while SIM-only contracts last between 30 days to 12 months. Shorter contracts like the 30-day deals can be a useful way to try out different networks without making a big commitment. 

I love my network, why would I change?

If you like your network and want to stay with them at the end of your contract, compare the price of their equivalent SIM-only plan before signing up to a new 24 month deal and see if you can save by going SIM-only with a SIM-free phone. 

If it’s the great coverage that keeps you loyal to your network take a look at the smaller mobile virtual network operators that run on the big four networks; they provide the same level of coverage but offer significantly cheaper deals. Compare the prices of their deals before you commit. 

It’s tempting to let your deal roll on at the end of your contract if you're happy with your phone, but the price you’re paying is the price you locked into two years ago. Networks frequently change their prices and update the allowances and extras in their plans. So even if you’re no longer paying for the cost of your phone you could be paying more each month than the equivalent SIM-only deal with the same network.

Upgrading your phone 

Upgrading on a contract

With most contract phones if you want to upgrade for free you’ll have to wait until you near the end of your contract. Some networks now offer tariffs that allow you to upgrade early, like O2 refresh, but you still have to pay off the outstanding value of your phone which can be expensive if you still have a year to run. Vodafone’s Red Hot plan lets you hire a phone and upgrade to a new one each year but you are liable for any damage, loss or theft and may have to pay a security deposit upfront depending on the phone you choose.

Upgrading SIM-free

Buying your phone separately to your mobile contract means you own it and can upgrade to a new one whenever you want to simply by buying a new phone. It also means you can sell your phone while it still holds value and being SIM-free means you can command a higher price simply because the buyer has more choice about which network they use. There are lots of companies, including the big mobile networks, that will offer you cash for your old handset. But phones depreciate in value over the period of your contract and what was once a £500 phone can by the end be worth £50. 

If you like having the latest smartphone then selling yours when the next model is released means you can get back a good chunk of what you originally paid. For example an unlocked iPhone 5s originally cost £549 when it was released in September 2013, but one year on you could still get up to £230 for your second hand phone from Mazuma Mobiles - a sizeable amount to use as a down payment on a new iPhone 6. Whereas a locked iPhone 5 released in September 2012 would net you a less impressive £110.

How can I tell which is best for me

Now that you’ve seen the pros and cons of both types of contract you can decide for yourself which one is best for you and see how much you could save. The easiest way to do this is to compare the cost of a phone bought SIM-free and a SIM-only deal of your choice with the equivalent network deal. You can find out the cost of a new handset by doing a quick Google search but make sure you buy from a reputable supplier. 

It’s not a given that SIM only is cheaper, it often is - particularly on premium phone deals, but it’s always worth comparing like for like to get a true cost comparison, as we have done below.

Nokia 635 with 600 minutes and 1GB 4G on Three
On contract you'll pay £21 per month. Total cost £504

On SIM-free you'll pay £119 for the phone plus £10 per month. Total cost £359*

Save £145

*Total cost is based on the cheapest available phone from a reputable supplier, in this case giffgaff, plus the equivalent SIM-only contract on the same network over 24 months. Prices taken 11/11/14.
Samsung Galaxy Note 4 with unlimited minutes and 1GB 4G on Vodafone
On contract you'll pay £49 upfront and £43.50 per month. Total cost £1093

On SIM-free you'll pay £599 for the phone plus £16.50 per month. Total cost £995*

Save £98

*Total cost is based on the cheapest available phone from a reputable supplier, in this case Expansys, plus the equivalent SIM-only contract on the same network over 24 months. Prices taken 11/11/14.
Apple iPhone 6 with unlimited minutes and 5GB of 4G on EE
On contract you'll pay £29.99 upfront and £55.99 per month. Total cost £1373.75

On SIM-free you'll pay £539 for the phone plus £21.99 per month. Total cost £1066.76*

Save £306.99

*Total cost is based on the cheapest available phone from a reputable supplier, in this case Apple, plus the equivalent SIM-only contract on the same network over 24 months. Prices taken 11/11/14.
Have you compared deals and made any savings yet? Our did you bag an upgrade bargain from your network? Tell us in the comments section below.