SIM-only vs mobile contract: which mobile tariff deal is right for you?

If you want to pay as little as possible for a decent mobile deal, are you better off opting for a contract or going SIM-only?

Woman using her phone on a train
(Image credit: Getty images)

April will see a host of household bills and taxes going up – and for millions of us that will include our mobile phone bills. Many providers look to make mid-contract increases to mobile bills, tying that increase to the rate of inflation plus a certain percentage.

For example, O2 and Virgin Mobile customers will see their bills increase by up to 17.3% from April, while Vodafone is upping bills by 14.4%.

As a result, plenty of people will be considering their options, and wondering if it’s possible to reduce the cost of their mobile phone. A key consideration will be whether to sign up for a contract or to move to a SIM-only deal.

So what are the differences between SIM-only and contract mobile phone deals, and how do you work out which will be best for you?

The pros of SIM-only tariffs

The big selling point of a SIM-only deal is generally the price. SIM-only tariffs are usually noticeably cheaper than what you would pay for a comparative deal on a more lengthy contract with a mobile phone network.

That’s really important when you are looking to cut costs.

SIM-only tariffs offer a little more flexibility too, with a range of contract lengths on offer. You could pick up a tariff on a rolling basis, meaning you can cancel it at any time without having to worry about paying off the remainder of the contract. 

That can be really attractive if you are concerned about your household finances, and don’t want to commit to a deal that might be affordable today but could be painful to maintain six months down the line.

SIM-only tariffs are worth considering if you like to swap handsets regularly, too. You will have to pay for the handset separately, but if you find six months later that you want to move to a different phone, you can do so without worrying about being tied in for another year in order to pay off the first handset.

SIM-only tariffs are also useful if you are happy with your existing handset. Just because you have had the phone for a year or so, that doesn’t mean it’s no longer up to scratch. If you are happy with what you have, moving to a SIM-only tariff means you can carry on as you were, just paying less every month for the privilege.

In addition, you can even keep your existing phone number, avoiding the hassle of telling everyone your number has changed.

Given the lack of exit fees with many SIM-only deals, if you change your mind and fancy moving to a contract and a new handset at any time, you’re free to do so at no additional cost.

The cons of SIM-only tariffs

However, SIM-only tariffs will not be right for everyone.

If you have come to the end of your contract and are keen to upgrade your phone, you may find a contract deal is more affordable. That way you can pay for the phone in manageable monthly chunks, rather than all in one go. 

However, if you are determined to stay SIM-only but need a new handset, you will have to find a way to pay for that. 

In addition, some handsets will be ‘locked’, meaning you can only use them with tariffs from a particular mobile network. If you want to opt for a SIM-only tariff, you will need to get that handset unlocked, which may incur a fee.

The pros of mobile contracts

Many people opt for mobile phone contracts instead, which run for between a year and three years. Payments for these deals tend to cover two different elements, partly towards paying for the new handset and partly for the tariff itself, meaning things like phone calls and data.

There are a few crucial plus points to these mobile phone contracts. The big one is that they allow people to upgrade their mobile handset every couple of years in a more affordable way. Handsets can be extremely expensive, costing hundreds of pounds, and many people don’t have that sort of money to pay in one go. 

By opting for a lengthy mobile phone contract, you can benefit from that technology by paying for it in monthly stages.

Mobile phone networks will often offer enticing trade-in deals for contract customers too, allowing you to trade in that old handset for a new one ahead of schedule, while you may also be able to adapt your contract to include more calls or data if need be.

A mobile phone contract can also help you improve your credit rating. Entering into a contract of this kind will contribute towards your credit score, and if you maintain your payments each month on time, your credit score may get a boost. As a result, you might have an easier time qualifying for credit in future.

Finally, some providers will throw in added perks to sweeten the deal, which can help you save money elsewhere. This could be a free membership to services like Apple Music and Disney+, or BT Sport. 

The cons of mobile contracts

The cost of a mobile phone contract can be a big issue. On a monthly basis, these deals are always going to be higher than SIM-only, since you are paying for both the tariff and the handset. That may make the deal less comfortable to maintain than a SIM-only contract.

These deals are costly over the long term as well. Yes, paying off a handset over two years is going to be easier than all in one go, but you may find that the total cost is higher than if you had simply purchased the handset separately. After all, you’re effectively taking out a loan to cover the cost of that handset, and so those monthly repayments will include the interest charged on that loan.

There is not usually much flexibility with a longer mobile contract either. You are tied into the deal for the duration of the contract, so if you change your mind about either the phone or the network you will need to pay off the contract in its entirety. Essentially, you don’t really own the handset until you have finished paying it off over the term of the contract.

The fact you are entering into a contract with the mobile phone provider means your credit record will have to be checked, too. If you have a patchy record when it comes to keeping up with your payments on other forms of credit, you may encounter difficulties in actually securing a mobile phone contract.

Is a SIM-only tariff or a mobile phone contract right for me?

In the end, what sort of mobile deal is right for you will come down to your own circumstances and needs.

If you are happy with your existing handset and want to keep your monthly costs as low as possible, the flexibility offered by a SIM-only deal is likely to appeal. You can also move over to a contract deal if and when your circumstances change.

However, if you need a new handset and don’t have the cash to buy one upfront, you might prefer to opt for a contract deal. Similarly, if you are looking to build your credit score, a longer contract may be more appropriate.

John Fitzsimons
Contributing editor

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.