Alternative Finance Options for Buying a Mobile Phone


A 24-month contract is not the only way to buy a new phone now and pay for it later. While it is the most popular option, it is rarely the cheapest or the most flexible.

In this article, we explore the downsides to 24-month contracts and two alternative finance options for buying the latest smartphones.

The Pros and Cons of 24-Month Contracts

Traditional 24-month contracts are the most common way to finance a new handset. They’re popular because they are easy to understand and quick to apply for. You can simply walk into any phone store, and provided your credit rating is up to scratch, walk out with a new phone 30 minutes later.

These sorts of contracts are available from a very wide range of retailers, including the big four networks, MVNOs, and smaller resellers. They are also available for every kind of phone on the market from ultra-budget to the latest models.

However, there are a number of disadvantages to 24-month contracts that few people are aware of.

Contracts are expensive; more expensive even than other financing options. Research by comparison site Tiger Mobiles in 2018 found that there’s a hidden APR of anywhere between 20% and 50% on contract phones. APR varies widely between providers and models, and it is rarely displayed in a clear and concise manner. Since the cost of the handset and the cost of the tariff are lumped together as one payment, you never really know what you’re paying for the handset.

24-month contracts are also inflexible. You are tied to the network (and often the tariff) for the entire duration. Even if you’re unhappy with the customer service, the signal is patchy in your area or you just want to take advantage of a cheaper deal elsewhere it can be extremely difficult to leave.

If you do decide to leave early you will have to pay an early exit fee – usually whatever’s left on your contract. This can be hundreds of pounds and it has to be paid when you cancel (payments can’t be spread out).

Mid-contract price rises are common, perfectly legal, and apply to the entire monthly fee (not just the tariff portion). This means you’ll pay even more for a handset that already has interest applied to it.

Fortunately, there are two alternative ways to finance a new handset. Both options provide you with greater flexibility and both can save you money. Read on to find out more.

Payment Plans

A payment plan is the most popular and well-known alternative to a 24-month contract. A payment plan is essentially a loan for the cost of the handset, and you’ll pay it off in monthly instalments (over 6 to 24 months).

This type of financing doesn’t include a tariff, but this is where that flexibility comes in. You can opt for a SIM-only deal from any provider and switch at will. SIM-only deals are very cheap, very flexible and tend to come with a whole host of other benefits.

The advantages don’t stop there though, because a payment plan may also be much cheaper than a 24-month contract. You will pay interest, but the APR tends to be lower. There’s greater transparency and you’ll know exactly what you’re paying for the handset.

Because a payment plan works much like a traditional loan, you can make overpayments or pay off the loan early to save on interest.

You can get payment plans direct from some networks and providers, including GiffGaff, O2, Tesco Mobile and Virgin Mobile. However, you will probably be tied these networks for your SIM-only deal.

You can also buy a handset from retailers like John Lewis and Amazon using a credit card or loan from your bank.

But the best option for direct mobile phone financing is currently Unshackled. They offer a whole host of unbundled deals, including the latest iPhone and Samsung models. Their financing plans are extremely transparent and there are no hidden charges, fixed terms or early payment fees.

PCP-Style Payment Plans

The second alternative type of financing is called a personal contract plan (PCP). It offers you lower monthly payments with the expectation you’ll trade-in your handset to pay off the remaining balance. Because this type of financing is relatively new for mobile phones, there isn’t a huge array of choice in terms of providers. There are two main contenders:

Unshackled: Unshackled offer this type of financing with their Switch 24 plan. The cost of the phone is split into 29 payments instead of 24. At month 24 you can trade-in the phone to pay off the remainder and get a new model or continue paying for another 5 months to clear the loan and keep the phone. You can choose any SIM plan you like, from any provider.

Sky Mobile: the Sky Mobile Swap plan works in a similar way but you are tied to a Sky SIM plan. There are however two options with Sky. Swap12 which is a 24-month credit agreement that allows you to trade-in after 12 months and Swap24, a 30-month agreement that allows you to trade-in after 24 months. There’s no upgrade fee if the phone is in perfect condition. However, if the device is damaged you will be offered a part-exchange deal, where you will have to pay something to upgrade. How much depends on the extent of the damage.

There you have it; two alternative finance plans that make traditional 24-month contracts look inflexible and out of date. Which will you choose?

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