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O2’s lending rate on iPhone 5 tariffs

Fri 21st September 2012

I was just looking at the O2 iPhone 5 purchasing website and noticed that all of the Pay Monthly tariffs are the same (24 months, unlimited minutes, unlimited texts, 1GB data), which makes it a good opportunity to work out how much O2 are charging you to get a discount on your phone.

Tariff prices for a black 64GB iPhone 5 on O2 for 24 months

As you can see from the image above, each £5 increase in monthly payment, you receive a £50 discount on the upfront cost of the phone. If you multiply that up over the length of the contract (£5 x 24 months), you find out you are paying £120 extra to receive a £50 discount up front. You don’t get any more minutes or text or data; it’s unlimited minutes and text, 1GB data, whether you pay £26 a month or £63 a month. The increase from £41 to £46 is slightly better: you get an £80 discount for the extra £120 you spend.

What is truly scary is that if you really can only afford to pay £99.99 for the iPhone 5 *right now*, then you will be on a £63 per month contract. To save £70 (over the price of the iPhone on the £46 tariff), O2 will take an *extra* £408 off your hands, over the course of £24!

Comparing the whole lot against the base £26 per month tariff, we can see that each time you take an upfront discount from O2, they make back more than double that amount over your contract:

Tariff 64GB iPhone 5 price Difference over 24 months Upfront discount
£26 £399.99
£31 £349.99 £120 £50
£36 £299.99 £240 £100
£41 £249.99 £360 £150
£46 £169.99 £480 £230
£63 £99.99 £888 £300

I guess the only sane advice can be to spend as much as you can afford upfront on the iPhone 5, and keep down your monthly bills. In fact, maybe it’s worth buying the iPhone 5 outright and getting a SIM-only contract elsewhere!

  1. Colin Williams permalink

    So, if I understand this correctly, O2 will loan you £50 for 2 years, but you pay £70 in interest, which, if I’ve calculated it correctly is an APR of nearly 55%. If you want to borrow £230 the APR is over 44%, and to borrow £300 it’s over 72%.

  2. I think the best advice would be not to buy an overrated piece of hardware (note, not a phone), and instead consider the alturnatives such as the Galaxy SIII or Note.

  3. @raminetinati: 🙂 that is if the Galaxy S3 stays on the market long enough to buy it! I’m still not sure about the Note. It is freakin’ massive!

  4. @Colin: I wasn’t entirely sure how to calculate it as a proper APR, as it’s over two years and you’re technically paying back some each month. But yes, the root of this is that O2 are charging a terribly interest rate!

    I wonder if it would actually be cheaper to pay the full amount for the phone on a credit card and only pay off the monthly difference?

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