A simples guide

Pay monthly vs pay as you go mobile phone contracts

There are various types of contract available to accompany your mobile phone. A pay monthly contract and a pay as you go (PAYG) contract. There are pros and cons to go with both types. Here, we’ll look to show you what these are in more detail and advise on a couple of things to be aware of too.

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Pay monthly

  • You’ll have the choice of the best phones with a smaller upfront payment. If you opt for a monthly contract, you’ll get a choice of all the latest smartphones. As these latest phones can cost many hundreds of pounds, this can be a big advantage to some people. Instead of paying upfront, you’ll be able to get your hands on it for either a fraction of the cost of the phone or completely free of charge.
  • Once you’ve taken out your contract that’s the end of any hassle. You’ll set up a direct debit and everything is taken care of. You don’t run the risk of running out of credit and finding yourself cut off either.
  • Now of course the phone isn’t free of charge at all. What the provider is doing is spreading the cost of that phone over the 18 to 24 month contract that you’ll also need to sign up for. Signing up for a monthly contract means committing to the provider for a set amount of time.
  • Beware of nasty bill surprises. Don’t think that because you know your contract amount, that that is all you will ever pay each month. Your monthly contract has an allowance. Sure, sometimes some elements may be unlimited, but not all of them. For example, you may have unlimited texts and 300 minutes of calls included. If you blow through that 300 minutes, you will pay for any additional calls and you could get a nasty surprise at the end of the month when the money is taken from your account.
  • Fixed contracts may not actually be fixed. Surely when you take out a two year contract for say £40 a month, you know that that’s what you’ll pay for two years, right? Well, no, not always. Unfortunately, inflation and tax increases can effect existing contracts. This may only be by pennies but it’s still annoying and you won’t have a right to cancel.

Mobile phone contracts


Pay as you go (PAYG)

  • There’s no lengthy contract to sign up for. This gives you more freedom to swap phone or network.
  • With PAYG, your bill can’t run away from you. Yes, you might use your credit up quicker than you would have liked, but at least you know how much you’ve spent. You don’t run the risk of finding more than you thought you’d pay has been taken from your account at the end of the month.
  • If you’re on a limited budget or an occasional user, a PAYG contract could be your best option. A number of mobile operators can provide a phone for less than £10 and then you’re free to top up as little as you like, and to use it when you like.
  • If you want the latest smart phone, you’ll have to buy it outright, upfront.
  • You run the risk of running out of credit with PAYG. However, mobile operators drop you a text to warn you when you get low, so you should be able to avoid the issue.

A couple of things to be aware of

If you sign up for a lengthy monthly contract, try and remember when it runs out. Why? Well, remember, your monthly bill is calculated to take into account that you’re paying for the phone. So, at the end of the 18 or 24 months, your phone is paid for. You could then switch to a SIM only package which will be much cheaper.

Don’t expect your mobile company to necessarily tell you this either. If you don’t think about it, you could continue to pay over the odds when you could either switch to a cheaper deal or get a new phone.

Finally, if you take out a monthly contract it will be subject to credit checks. This is because essentially you’re buying your new phone on credit via your monthly contract. If you have a poor credit history or no history at all you might need to sign up for a PAYG contract instead.

For some great mobile phone deals, compare the market here today and see what you could save.