Prepaid Vs Contract

If there’s one thing we all know as South Africans, it’s that mobile operators make it very difficult to figure out what the best, most cost-effective routes are when it comes to their contracts. Recently there’s been a growing trend amongst South Africans to buy prepaid, but is it actually cheaper and who does it benefit? Many people will debate the benefits of one over the other, but the truth is that the answer depends on the individual and their needs. To help you figure out which is the best deal for you, we take a look at the pros and cons of both.

Contracts tend to be the best option for people who use their phones for a range of things: from social purposes to business, or for those who would simply like an upgrade every two years. These deals are packaged in a way that makes it appear that the customer gets more included benefits, from free SMS messages to special rates.

A new phone every two years

One of the main attractions of contracts for many is the opportunity to upgrade your phone every two years. If having the latest handset is important to you, then this is definitely a major benefit of a contract. While the phone is not ‘free’ (you pay for it within your contract), you don’t have to fork out the full amount at the get-go.

You’re always connected

Another benefit of having a contract is that you never need to worry about not being connected, be it for your business, your social life or an emergency. With a contract, you can trust that you’ll be able to call, text and use your internet whenever you want (as long as you have signal).

More integrated benefits

With prepaid, you know exactly where your money goes, but once that money is gone, it’s gone. With contracts, there are many more included benefits, which range from free minutes and data to SMS bundles and free gifts. You could also receive special offers when you upgrade.

There are a variety of choices

If you’re happy to shop around for your contract, you’ll find that there are many options out there—from packages that include loads of data to ample free minutes. You can choose the one that suits your budget and needs.

You know more or less what you spend each month

With prepaid, there are likely to be months when you spend a lot more than others. With your contract, if you find one that has the right amount of free minutes, data and SMS messages, the chances are that you know exactly what to expect every month.

You have to sign up for 24 months

Most, if not all, contracts require you to sign on for 24 months, after which you’ll have an option to upgrade or continue on the same contract minus the cost of the phone, which you’d have paid off in those first 24 months. If you’re not sure that you can make that kind of commitment, a contract isn’t your best bet. In some cases, you can cancel your contract, but you’ll be liable to pay a penalty of up to 75% of the remaining balance of the contract.

Contracts can be expensive

While there is a wide range of cellular contracts to choose from, the truth is that with the cost of the phone included in the 24 month contract, they can be expensive, especially those that include the latest smartphones, unlimited data, free minutes and all the added extras.

You might not use all the added extras

Contracts tend to give a huge number of free SMS messages—that’s because cellular companies know that it might look good on paper but people don’t really use them much anymore with the advent of data-driven messaging platforms such as WhatsApp. Many contracts these days are bulked up with “added-value” items that don’t add much value in reality.

Extra calls, data and SMS not included can work out very expensive

One of the risks with contracts is that if you use more data, call time and SMS messages than is included in the package, you’ll have to pay extra. If you’re already on an expensive plan to begin with, this could be a dangerous habit.

Roaming fees are always expensive

If you have a contract, turn your data off when you travel. While most of the South African cellular networks now offer ‘saver’ rates on the standard roaming fees, you can expect to pay anything between R5-R15 per minute with MTN or Vodacom when making calls if you’re in, say, France, with data costs starting from around R2.50 a MB! Needless to say, it’s easy for you to rack up a hefty bill without even knowing it while roaming.

Many people like the idea that with prepaid, they’re not locked into a contract for a period of time. This means they can walk away whenever they want to. It also gives people the feeling that they have greater power over their monthly cell phone usage and spending.

You can walk away at any time

With prepaid, you’re under no obligation to remain loyal to any service provider and you can walk away from it whenever you please. It’s an easy, flexible way to stay connected without the red tape associated with cellular contracts. If you decide you want to move overseas, change to a different network or upgrade to a contract, it’s simpler using prepaid than any other option.

You have greater control over what you spend each month

If spending a lot of money for a flashy, state-of-the-art phone is not a priority for you, and you’re looking to save, prepaid makes sense. On prepaid, you can control exactly how much you spend on your phone each month and how many minutes and data you use, and pay for, allowing you to keep your costs to a minimum if needs be—whatever your budget allows, with prepaid you can stick to it.

You aren’t paying extra for a new phone

One of the things that make cellular contracts so expensive is that you’re paying for the cost of a new phone in each month’s fee. By opting to go prepaid, you don’t have the burden of that expense. Instead, you only pay for what you need and use.

You don’t need a credit check for a prepaid plan

For those who don’t have a credit history or don’t have a good credit score, prepaid is the best option. Whereas a contract application involves a credit check, a prepaid plan requires no such prerequisites and is relatively hasslefree.

There’s a lot of choice

When it comes to prepaid, you have a range of different options for bundles of data, airtime and SMS messages. It’s also easier than ever to top up on these. Long gone are the sprints to the corner cafe in the rain to buy some airtime. Almost every mobile banking app has a function for buying airtime, data, or SMS bundles.

Your data and airtime bundles now rollover after 30 days

In the past, prepaid users received no notice of their usage (when it was finished, for example) or that after 30 or 90 days, any leftover airtime and/or data would expire. From this frustration, the #datamustfall movement arose, leading to the 2018 ICASA ruling stating that “...service providers MTN‚ Vodacom and Cell C must provide an option to roll over unused data. This has help control data wastage.” Furthermore, prepaid users are now informed when they have used around 50%, 80% and 100% of their data, meaning that you’re better equipped to prevent the rollover to inflated out-of-bundle rates.

You still need to buy a phone

One of the major downsides of prepaid is that the plans don’t come with phones. You have to either buy a new phone or make do with an old one. While paying for a phone in cash generally works out cheaper than paying it back every month through a contract, it requires you to pay upfront.

If you spend a lot of time using your phone, prepaid might not be the best route

For people who are constantly using the internet on their phones, message a lot or simply make a lot of calls, prepaid probably isn't the best option. It might be better to see what contract you can afford, what is offered on it and weigh up the two to find the option that makes the most financial sense.

You risk being ‘disconnected’

If you run out of airtime and data and either can’t afford more or don’t have time to recharge, you’ll be unable to use your device for calls, messages or internet. For social situations, this is probably not too important, but for business arrangements or emergencies, it’s considerably more stressful.

It may not necessarily be cheaper

There’s a misconception about prepaid plans; that they are infinitely cheaper than contracts. Because you aren’t paying off a phone with your prepaid plan, that is technically true. But that doesn’t mean that the per minute or data usage rates are actually cheaper. In fact, the opposite may be true. Another thing to be aware of is that data is only really cheaper when you buy more of it. This obviously only benefits people who can afford to buy the bigger bundles.

It’s all up to you

Ultimately, the prepaid vs contract decision will depend entirely on your needs, what you use your phone for, and how much you are going to use it. Weigh up all the pros and cons, do your research, and choose the option that makes sense for your lifestyle and budget.