How this calculator works
Phone offers usually bundle two things: the handset and the service. A contract may discount the handset but charge more each month, while buying the phone outright often lets you use a cheaper plan. Comparing the monthly payments alone is misleading because the upfront cost differs. This calculator adds the upfront price and every monthly bill for each option over the contract length. It also discounts the monthly bills at the return you give up by paying more up front, which puts both options on the same footing: money paid today is worth more than the same money paid in two years. The result shows the nominal totals and the present-value comparison. The lower-cost option is the one with the smaller present value. The model assumes the service is comparable between the two options, no price changes during the term and no cancellation fees or remaining-device payments at the end.
Formula
Contract total = upfront phone price + monthly contract bill x months. Outright total = full phone price + monthly bill with your own phone x months. Present value of a monthly payment stream = payment x (1 - (1 + i)^-n) / i, with i = annual return / 12; at a zero return it is payment x n. Present-value difference = contract present value - outright present value. A positive difference means buying outright costs less.
Worked example
A contract with a $200 handset and $85 a month for 24 months totals $2,240. Buying a $1,000 phone outright and paying $45 a month for the same 24 months totals $2,080. At a 3% return, the contract is worth $2,177.61 in today's money and the outright option $2,046.97, so buying outright is cheaper by $130.64. The two options break even at about 20.5 months, because the contract saves $40 a month but starts $800 cheaper on the handset.
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Frequently asked questions
Why use present value instead of the total?
Paying $1,000 today is a bigger sacrifice than paying it in two years. Discounting the monthly bills at the return you could otherwise earn makes the comparison fair, especially when the upfront costs differ a lot.
What about keeping the phone after the contract?
A phone bought outright is yours from day one and can be kept or sold when the contract ends. A contract handset is usually yours only after the term, and may be locked or have a remaining balance. That residual value favours buying outright.
Should I include data and roaming differences?
Yes, if the plans are not comparable. The calculator assumes the same service. If one plan includes more data or better coverage, adjust the monthly bills to reflect what the difference is worth to you.
Are there hidden costs in a contract?
Possible early cancellation fees, a remaining device balance if you leave early, and price increases after the term. Read the contract terms. A contract that looks cheaper per month can cost more if you switch before it ends.