What’s the Smart Way to Pay for a phone?

Some purchases are too big or too urgent to pay for upfront.

So if you’re borrowing money to buy a new phone, what are the smart ways (and the dumb ways) to pay?

We’ve crunched the numbers on a $1000 phone from Cash to Debit cards, Buy Now Pay Later, Credit Cards and Payday Loans.

Below you can see what the cost of each option is if you pay it off after 2 months, and what the worst case scenario is after a year if you incur late fees or the maximum amount of fees and interest.

NUMBER CRUNCH: SMART WAYS TO PAY FOR A $1000 PHONE

WAYS TO PAYVERDICTBEST CASE*WORST CASE*HOW IT WORKS
CASH
$AUD
SMART$1,000$1,000
DEBIT CARD
Visa or Mastercard
SMART$1,005$1,0100.5%-1% merchant fee
BUY NOW PAY LATER
Afterpay
SMART$1,000$1,0684 fortnightly instalments of $250, late fees of $10-17
BUY NOW PAY LATER
Zip Pay
SMART$1,012$1,072Min. $40/mth repayment + $6/mth fee
BUY NOW PAY LATER
Humm
SMART$1,000$1,1005-10 weekly/fortnightly instalments, monthly fee up to $8, late fee $6
BUY NOW PAY LATER
Klarna
SMART$1,000$1,0284 instalments, late fee $7
CREDIT CARD
Low-rate card
OK$1,033$1,12310% p.a. interest + 0.5%-2% merchant fee
CREDIT CARD
Standard card
DUMB$1,045$1,21620% p.a. interest + 0.5%-2% merchant fee
PAYDAY LOAN
Nimble
DUMB$1,280$156020% of the purchase + 4% a mth

* ‘Best case’ is the cost to you if the phone is paid off after 2 months. ‘Worst case’ is the total cost if the phone is still not paid off after 12 months, and you’ve incurred the maximum amount of fees and/or interest. Note that I have not included the annual credit card fee in the ‘worst case’ cost for credit cards.

🪦 R.I.P. Credit Cards 🧛‍♂️ & good riddance! 👏

Australians ditch credit cards as millennials turn to ‘buy now, pay later’ players like Afterpay, Zip https://t.co/ddvVfLWJDm— Joel Gibson (@joelgibson) October 20, 2020

IS IT BEST TO PAY UPFRONT OR ON A PLAN?

a customer holds a recently purchased iphone 12 with two boxes in the background

It used to be that buying a phone upfront was cheaper than buying it on a plan. Carriers would add a premium to the price and make a profit on the phone. But that’s no longer the case.

Here’s the cost of a new iPhone 12 in October 2020 if you bought it upfront from Apple, Harvey Norman, Kogan.com OR Costco compared to buying on a plan from Telstra, Optus or Vodafone.

As you’ll see, there’s not much difference between upfront and plan prices. The only cheaper options are Kogan, which had undercut the others by $20, and Costco – which requires a $60 annual membership.

So your decision will probably come down to which mobile carrier you’re with and whether you want to commit to them for 24 or 36 months.

UPFRONT VS ON A PLAN

RETAILERUPFRONT/PLANIPHONE 12 PRICE
AppleUpfront$1349
Harvey NormanUpfront$1349
Kogan.comUpfront$1329
CostcoUpfront$1320
TelstraPlan$1349 in 24 or 36 instalments
OptusPlan$1349 in 24 or 36 instalments
VodafonePlan$1349 in 24 or 36 instalments

WHAT ARE SOME OTHER SMART WAYS TO GET THE COST DOWN?

Check bargain forums & price comparison websites:
Keep an eye out for sales on the phone you want via online bargain-hunting forums and price comparison websites. Try these for starters:

  • Ozbargain.com.au: Australia’s biggest online forum for bargain hunters. Has a ‘Mobile’ section where members post the best deals they’ve seen and others can vote them up or down.
  • Getprice.com.au: A price comparison site that lists more than 3.5 million products from over 1,200 retailers nationwide and shows you the cheapest advertised prices online.

Trade-in your old phone:
Quite a few sellers will let you trade in your old phone and give you anywhere from $50 to $1000 credit towards a new one:

  • Apple accepts trade-ins when you buy a new phone. They’ll give you anywhere from $65-$900 credit depending on the model and condition of your old iPhone. They’ll even pay up to $350 for some Android phones.
  • Samsung accepts trade-ins and gives you up to $615.
  • Carriers: You can also trade in your old phone when you sign up to a new plan and get hundreds of dollars of credit with TelstraOptus and Vodafone.

Consider refurbished or second-hand phones:
Can’t afford the brand new version? There’s always refurbished or second-hand phones.

With refurbished phones, you get some guarantees you won’t get buying from a stranger online: they’ve been tested and renovated so they look ‘like new’ and they carry a 12-month warranty. Here are a couple of examples:

  • Apple takes second-hand phones and replaces the shell and battery and sells them at a 15% discount.
  • Nu Mobile does a 51-point check and offers a 30-day satisfaction guarantee on top of the 12mth warranty.

Any information is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.

Check KILL BILLS for more helpful tips about saving.

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