There are three ways to manage your mobile phone bills: a pay monthly contract, a pay-as-you-go (PAYG) arrangement, or a SIM-only deal. Here’s a look at the key differences to help you choose the right one for you.
Your handset
With a pay-monthly contract you are provided with a new phone – but it’s by no means free.
On a contract, your monthly payments go towards your monthly texts, calls and data allowances plus payments towards the cost of the handset. It means your monthly costs are higher than they might be via PAYG.
With a monthly contract you may have to pay an amount upfront, especially for a newly-released phone model. But with most such contracts, there’s either nothing or relatively little to pay upfront.
You’re effectively spreading the cost of the phone over the term of the contract, which is typically between 12 and 36 months, with a low initial outlay – or none at all. For many, this can be the most cost-effective way to manage a mobile – particularly if you want one of the latest or most expensive handsets.
A PAYG-with-handset deal give you a phone and a SIM, but the cost of the SIM card is nominal. Depending on the handset you want, your initial outlay could be significant. Some of the latest smartphones are selling for £1,000 and above.
SIM-only deals are designed to be used with a handset you already own. You may have bought it outright, on credit or even still have it from a previous, expired contract. Either way, all you get from the network operator is a SIM card to use in it.
Your payments
With a pay-monthly contract, you’ll sign up for fixed payments agreed in advance with the network operator. In return you’ll get a handset to pay off over the course of the contract plus monthly allowances for calls, texts and data. Payments are taken via direct debit from your bank account once a month.
Some operators allow you to pay off your handset in full at any time, or to make overpayments until your handset balance is cleared.
Unless you choose a tariff with unlimited allowances for calls, texts and data (or you set caps for each), you’ll be charged for your usage beyond your monthly allowances.
With PAYG, you prepay your bills. You can top up your balance online, by phone or at the checkout in selected stores and then use your handset as you would any other until the balance is spent. You can also link your SIM to a debit card and have your balance automatically topped up when it runs out.
SIM-only payments work much the same way as a pay-monthly contract. An agreed amount is taken from your bank account each month in return for usage allowances for minutes, texts and data. Use more than your allowance and you’ll pay your network’s standard rates for calls, texts and data.
Your usage
Many pay-monthly and SIM-only deals impose no limits on calls and texts. The pricier ones also place no limits on data. The rest will limit your calls to a given number of minutes each month, your texts to a certain number and data to a set amount, measure in gigabytes (GB).
PAYG deals have set charges per minute for calls, per text and per megabyte for data. Each minute, text or MB will deplete your balance until it reaches zero. There’s no credit facility so you can only spend what you pre-pay.
Convenience
Pay-monthly deals lock you in to a contract for a set number of months. During that time, you can’t leave your network without incurring a penalty. For longer contract terms, this could mean being stuck with what some would consider an outdated handset until it’s time to upgrade. That said, many pay monthly contracts allow for early upgrades if you clear your handset balance.
Pay-monthly payments are taken automatically and it’s possible to impose spend limits on your account so that you always know what your monthly bill is going to be.
PAYG deals don’t tie you into a contract. Since you buy the phone upfront, you’re free to take your business (and your handset) elsewhere whenever you like. For some, however, the need to make top ups may be inconvenient – though automatic top-ups could make things simpler.
If you have a handset you’re happy using, SIM-only deals offer a good balance of having monthly allowances and short contracts. The SIM-only option offers a credit facility so that you don’t have to worry about topping up but doesn’t impose the long contracts associated with pay-monthly deals, since you’re not paying off a handset balance.
It means you can, for example, take advantage of a deal with no limits on calls or texts without needing to get tied down for 12, 24 or 36 months.
Value for money
Pay-monthly contracts offer the best value for money because all the networks want you on their books for as long as possible. With such strong competition, the deals on offer often represent good value for money.
For example, if you’re a heavy mobile user, you could be sending hundreds if not thousands of texts in a month. Some networks charge 15p per text message. At 1,000 messages (or 33 a day in a 30-day month), you’d rack up a bill of £150. Sending the same number of messages on a pay-monthly contract with unlimited texts would cost much less, since they’d be included in your monthly bill.
The ability to spread the cost of a handset over 12, 24 or 36 months can also be appealing, especially if you’ve got your eye on an expensive phone. Be aware, however, that applying for a pay-monthly contract involves a credit check, since the operator will effectively loan you the cost of the phone and allow you to repay it over the contract term.
SIM-only deals represent the same kind of value for money as pay-monthly contracts, but only if you have a handset you’re happy to use. If you’re buying a handset to put the SIM card in, you’ll need to either pay upfront or use credit – but pay monthly contacts don’t tend to charge interest on handset repayments, so there’s likely no money to be saved.
PAYG can be one of the least cost-effective ways to manage your mobile, particularly if you’re a heavy user. Per-minute, per-text and per-MB charges can end up being quite expensive when there are pay-monthly tariffs without usage limits for a set monthly cost.
There is a slight exception in the form of ‘bundled PAYG’ deals. Some networks allow you to use your account credit to buy calls, texts and data in bulk rather than on a per-text, per-minute, per-MB basis. If you prefer or need to go down the PAYG route, this represents better value for money.
You’ll get a set amount of calls, texts and/or data for a set fee. There are even bundles with unlimited allowances. You pay for the bundle out of your credit though, so you still have the process of topping up your account.
