The length of mobile phone contracts is increasing, with 36 month repayments now offered by O2, Vodafone, Tesco Mobile and Sky Mobile.
But are there any hidden costs associated with the benefits of spreading the repayments? What else should you consider when entering into a longer contract? We looked at the terms and conditions and analysed the pricing to find out if these long term contracts are cost effective.
When you enter into a phone contract, you're actually being charge for two separate things. One repayment is for the phone, and the other is the airtime - the package of calls, texts and data.
Ofcom has banned providers from bundling contract payments for a phone and airtime that is longer than 24 months, but a 36 month contract for just the phone is allowed.
This means that when you see 36 month contracts advertised, it's just for the repayment of the phone. After 24 months, you would need to renew your airtime contract or find a new deal, either with the same provider or elsewhere.
We compared the cost of 12, 24 and 36 month contracts from the providers that offer them to see if there's a premium attached.
Both the 12 and 24 month contracts for the iPhone 13 with O2 involve a total outlay of £741.12 for the device. The 36 month contract option is just a tiny bit more expensive, at £741.36.
The total cost of the iPhone 13 on Vodafone's 36 month contract is exactly the same if you opt for a 12 or 24 month contract instead of 36 months. In each case the total cost for the device here is £821 - though that's noticeably more expensive than O2.
It's a similar story with Tesco Mobile, where you'll pay £827.64 for the iPhone 13 in total, whether you opt for the 12, 18, 24 or 30 month contract instead of 36.
Sky is a bit different, offering it's Sky Swap deals that allow you to choose when to 'swap' your phone for a new model at the end of the initial period. However, you still need to pay off the remaining cost of the initial handset when you do so, and there will be a cost associated with the new phone.
For example, if you choose to swap your phone after 12 months you'll still need to continue repaying it for an additional 12 months (effectively a 24 month contract on the handset). Choosing to swap after 24 months involves an additional 12 months repayment (effectively a 36 month contract).
The handset cost is about the same in each case (£832 in total), but it's important to make sure you know how much you're paying each month if you decide to swap in a new phone.
So while there may not be a significant premium involved in the cost of the handset if you choose the spread the repayments over a longer period, it's still important to shop around. These examples show how the handset itself can ultimately cost a fair bit more depending on the provider, and there are other things to weigh up if you're considering a long-term deal.
The benefits of 36 month contracts are largely about spreading the cost.
There are several drawbacks to 36 month contracts for consumers, which are advantageous to the mobile provider as they have you committed for three years.
But perhaps the biggest drawback in the current market is that you're more susceptible to inflation. A 36 month contract could cost significantly more per month by the final month than the first, given you could go through a series of price rises over the contract period.
This year, the price of O2 contracts are increasing by 11.7% (Retail Price Index inflation rate 7.8% plus 3.9% extra), Vodafone is increasing by 9.3% (Consumer Price Index inflation rate 5.4% plus 3.9% extra. So customers on 36 month contracts with these providers could face multiple years of these large increases in price.Currently, Sky does not raise prices mid-contract, but it offers no guarantee this will always be the case. Tesco has a price freeze guarantee, in which the monthly cost of your contract remains the same for its duration.
When considering buying a new phone, it's important to shop around for different deals being offered by providers.
Instead of tying yourself down to a lengthy 36 month contract, if you are able to, consider purchasing a phone outright. An iPhone 13 is available from retailers such as Argos, Curry's and Carphone Warehouse for £729, which could be significantly cheaper than the cost of the phone you're repaying on a contract.
Being able to shop freely for a Sim deal with any provider is also a huge benefit. You could make significant savings, both with a Sim-only plan from the same provider, or with a rival. And if you opt for a rolling monthly contract you're inflation proof, and can swap around as your needs change.
For more advice about reducing mobile phone costs or making the most of your current contract: