Pay As You Go VS Pay Monthly Contracts: Mobile Phone Tariffs Compared

January 19th, 2012

How do Pay As You Go tariffs and Pay Monthly contracts compare in terms of price, spend control, convenience and total cost of ownership?

With Pay As You Go, you’ll need to top up your phone regularly with credit.

What is a “Pay As You Go” or “Pay Monthly” mobile tariff?

  • “Pay As You Go” or pre-pay refers to any mobile phone tariff whereby you need to top-up your account with calling credit. You must top-up before you are able to make outgoing calls, send text messages or browse the internet. Typically, you are charged individually for each minute you spend on the phone, for each text message you send and for each megabyte of data you download. These charges are taken from your Pay As You Go account balance (“credit”).
  • “Pay Monthly” or post-pay refers to a mobile phone contract (typically lasting 12, 18 or 24 months). Pay Monthly contracts have a set monthly price for which you’ll get an inclusive allowance of calls, texts and internet browsing. You’ll be billed at for your basic contract as well as any additional out-of-allowance charges incurred at the end of the month. These charges will usually be taken from your bank account automatically via direct debit.

To complicate things, a new class of Pay As You Go tariff has emerged over the past year or two. These tariffs aim to combine some of the benefits of Pay Monthly such as cheap calls, texts and internet whilst maintaining popular features of Pay As You Go such as the spend control and lack of 24-month commitment. Examples of “hybrid” Pay As You Go tariffs include Giffgaff Goodybags, Three’s “All in One” tariffs and O2 Simplicity. Attempts have also been made to bring better spend control to Pay Monthly such as T-Mobile’s “You Fix” tariff which prevents customers from running up additional out-of-allowance charges.

What are the pros and cons of Pay As You Go and Pay Monthly?

In general, Pay Monthly contracts tend to offer better value than Pay As You Go – airtime tends to be cheaper on Pay Monthly and you’ll get a free or reduced price smartphone included with your contract. The flipside of this is that you need to commit to your mobile network for 24 months and you’ll need to pass a credit check for your contract.

Pay As You Go Pay Monthly
Higher charges for calling, texting and internet.
Typical “Pay As You Go” rates are 25p/minute for calls and 12p per text message. This is fairly expensive and charges can add up quickly – a Pay As You Go user who consumes 100 minutes and 100 text messages in one month would have to pay £37. Calling rates can be lowered to about half (10p/minute and 6p/text) on low-cost networks such as giffgaff.
Cheaper calls, texts and internet access.
A typical Pay Monthly contract will come with an inclusive allowance of calls, texts and internet at a much lower price than on Pay As You Go. For example, £10/month would buy you 300 minutes, unlimited texts and 500MB internet. The phone calls alone would cost £75 on a typical Pay As You Go tariff, even before we consider texts and internet access.
High upfront charge for your mobile phone.
With “Pay As You Go”, it is necessary to buy your own mobile phone to be used with the service. Whilst basic handsets are available for as little as £10, the latest smartphones such as the Apple iPhone 4S or the Samsung Galaxy S II will set you back in the region of £400 to £500 on Pay As You Go.
“Free” or reduced cost smartphone included.
When taking out a “Pay Monthly” contract, it is common to receive a brand new smartphone with no upfront cost (or a very much reduced cost). You could expect to get the Apple iPhone 4S for the reduced price of £129 on a £30/month contract or the Samsung Galaxy S II for free on a £27/month contract.
More flexibility: no commitment.
Pay As You Go tariffs do not come with a 24 month commitment. This means you’re free to change phone or network whenever you want whilst keeping your existing phone number. Not being tied in means you can switch network as soon as you spot a better deal.
A 24 months commitment.
Most Pay Monthly contracts involve a commitment of at least 24 months. It is not possible to leave or to change network within these 24 months without paying off the cost of the rest of the contract. It also will not be possible to upgrade your phone early (unless you buy it at separately at full price).
Pay only for what you use.
With Pay As You Go, you only pay for the calls you make, the texts you send and the web pages you browse. Any calling credit which isn’t spent will roll over to the following month.
Pay even when you don’t use your phone.
The dilemma of Pay Monthly is that if you don’t use up all of your minutes, you’re still paying for minutes which you don’t use. On the flip side, go over your monthly allowance and you’re charged punitive rates of 40p/minute. It’s difficult to predict in advance how you use your phone so picking the wrong contract could be costly.
No credit check required, better spend control.
Unlike Pay Monthly contracts which are subject to a credit check, no credit check is required for Pay As You Go. On Pay As You Go it is easier to control your spending as you cannot spend more than your top-up amount.
Credit check required.
Taking out a new Pay Monthly contract is subject to being able to fulfill a credit check. Typically this means you’ll need to be at least 18 years old and have lived in the UK for a couple of years.

Some “hybrid” Pay As You Go tariffs combine the benefits of both Pay As You Go. For example, Giffgaff (see our full review of Giffgaff) offers low-cost airtime bundles on Pay As You Go without a 24 month commitment or a credit check. However, you’ll still need to pay the full price of the phone upfront like on other Pay As You Go tariffs.

Pay As You Go Hybrid Pay As You Go* Pay Monthly
Cheap calls, texts & internet
Free/reduced cost smartphone
Flexibility to change network
Pay only for what you use?
Available without credit check

* “Hybrid Pay As You Go” tariffs include Giffgaff Goodybags, Three’s “All in One” tariffs and O2 Simplicity.

How does the total cost of ownership compare for Pay As You Go and Pay Monthly?

One of the key benefits of a 24-month Pay Monthly contract is that you’ll either get a free or substantially discounted smartphone included with your contract. One possible alternative, if you’re happy to spend around £300-£400 to buy a SIM-free smartphone upfront, would be to use a hybrid Pay As You Go tariff such as Giffgaff’s Goodybags. Over 24 months, the total cost of ownership of both methods typically works out to be fairly similar for both types of tariff.

According to PAYGvsContract.com, the total cost of ownership of the cheapest Pay As You Go and Pay Monthly tariffs compare as follows for somebody using 250 minutes, 250 texts and 250MB internet each month:

Phone Pay As You Go Pay Monthly
Apple iPhone 3G S (8GB) £559 £600
Apple iPhone 4 (8GB) £669 £729
Apple iPhone 4S (16GB) £739 £835
Apple iPhone 4S (32GB) £839 £939
Apple iPhone 4S (64GB) £939 £1,029
BlackBerry Bold 9900 £758 £750
HTC Sensation XE £625 £648
HTC Wildfire S £391 £418
Nokia Lumia 800 £623 £624
Samsung Galaxy Ace £416 £408
Samsung Galaxy S II £650 £648

For many of the handsets listed, the Pay As You Go option is cheaper. However, the results differ when we look at a “heavy” user who consumes 500 minutes, 500 texts and 250MB internet a month:

Phone Pay As You Go Pay Monthly
Apple iPhone 3G S (8GB) £799 £600
Apple iPhone 4 (8GB) £909 £769
Apple iPhone 4S (16GB) £979 £889
Apple iPhone 4S (32GB) £1,079 £979
Apple iPhone 4S (64GB) £1,179 £1,069
BlackBerry Bold 9900 £998 £750
HTC Sensation XE £865 £720
HTC Wildfire S £631 £480
Nokia Lumia 800 £863 £672
Samsung Galaxy Ace £656 £408
Samsung Galaxy S II £890 £720

Where can I find out more about Pay As You Go tariffs?

We’ve got a comprehensive listing of the UK’s Pay As You Go tariffs and where to get free SIM cards.

Where can I find out more about Pay Monthly tariffs?

We’ve got a listing of the UK’s best value SIM-only tariffs for smartphones. These SIM cards can be used in your current smartphone and offer a low-cost bundle of calls, texts and internet access.

Is there an easy way to compare Pay As You Go tariffs against Pay Monthly tariffs?

Yes. We run our own price comparison website called PAYGvsContract.com (find out more information about the site). This website is able to simultaneously compare both Pay As You Go and Pay Monthly options to find out which type of tariff is cheapest. We support the most popular smartphones including the Apple iPhone 4S, Samsung Galaxy S II, Nokia Lumia 800 and HTC Wildfire S.

I’m switching network. Can I keep my existing phone number?

Yes. You can keep your existing phone number, even when moving between Pay As You Go and Pay Monthly. You’ll need to request a PAC Code from your current network which should be provided to your new network. Your new mobile network will handle the transfer of your phone number which should take no more than 24 hours.

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About Ken

Ken Lo

My passion is helping people to get the most out of their mobile phone. I've been blogging at Ken's Tech Tips since 2005.

Aside from writing about mobile technology, my interests are in software development, digital marketing and physics. Outside of the blog, I work with numerous technology companies helping them to explain their product and helping them to market it to consumers. Please get in touch for more information.

Your Comments

We'd love to hear your thoughts and any questions you may have. So far, we've received 1 comment from readers. You can add your own comment here.

  1. Dianabol said:

    Howdy! This post could not be written any better! Reading this post reminds me of my good old

    room mate! He always kept chatting about this.

    I will forward this article to him. Pretty sure he will have a good read.

    Many thanks for sharing!

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