My friend is head over heels for a prepaid model. Read to find out why!

When purchasing a brand new mobile phone, most Australians find themselves caught between choosing a prepaid model and a contract model. Both these plans are designed to help save you a couple of dollars over a large period of time, but things are a little different when seen through an economic lens. Both these plans are locked in a constant state of war with each other, confusing newer and older customers alike.

My friend however, whose name I’ll refrain from mentioning, swears that the prepaid model is the best deal since the dawn of time. Now, I was a little bit sceptical about his giant claim and asked him to provide me with proof. And boy, did he convince me!Image result for prepaid model. Read to find out why!

Here’s what he had to say

You get more freedom

Choosing a contract cell phone is like being hogtied to train tracks. You’re not getting out unless either the train runs over you, or some good Samaritan comes to your aid. That is, you’re not getting out of the contract without committing at least two years of data fees no matter what. And if you want to get out early, prepare to shell out a couple of hundred dollars on top of this.

With a prepaid model however, you’re not bound by monthly contracts and pay for what you use. You pay for a certain package of minutes every month, and these minutes are available for use until they’re either used up or they expire.

There’s no such thing as unused minutes

The biggest disadvantage with contract cell phones is being burdened with having to use all your minutes. You just have to use them within a certain period of time, otherwise they go unused – but you still end up paying for them. These minutes won’t roll over to the next month and you will have wasted a couple of bucks. Over a period of a few months, this amount – which may have felt petty at first – accumulates substantially. This isn’t the problem with prepaid phones however; you pay for what you get. The unused minutes get rolled over to the next month and you don’t lose your money.

You save more money

While the upfront costs of prepaid options are substantially higher because they’re not subsidized, it might seem like you’re paying a lot more than contractual plans. But in the long run, you actually end up paying significantly higher committing to a contract than simply using prepaid plans. My friend gave an example of a typical prepaid model versus a contract model.

Prepaid model
Cell Phone $600
Monthly Fee $40
Data fee $1000
Two year total $1640
Contract model
Cell Phone $100
Activation fee $40
Monthly rate $70
Access fee (2 year) $1680
Two year total $1820

The tables show what a typical phone can cost over a two year period. You’re saving almost $200 while still retaining a great degree of freedom using a prepaid model.

Change your phone whenever you want to

My friend swears he got the best and cheapest prepaid deals with Compare TV, where he ended up saving hundreds, if not thousands of dollars. He is someone who likes changing his phone every now and then. So when a new android phone or a new iPhone gets released, he starts salivating on the latest features the new models carry.

If he had a contractual obligation with his current phone, he would have to first terminate it, before proceeding to purchase his new phone. That there is a bad deal that you can spot from a mile away!