is today calling for new rules to force mobile phone providers to display clear APRs on smartphone contracts to ensure users understand that by signing up to a mobile phone contract they're effectively taking out a loan to pay for the handset.

Our research reveals that in some cases the amount you pay for a new iPhone on a two-year contract works out the same as buying the phone with a 48% APR two-year loan.

We're warning consumers that a mobile phone contract is a loan as they're charged interest on the handset. In addition, customers are credit checked and this can leave a mark on their file.

We worked out how much extra users would pay with six of the UK's biggest mobile providers if they were to get an iPhone 6 (16GB) or a Samsung Galaxy S5 on a two-year contract, as opposed to buying the handset directly and taking out the same network's equivalent Sim-only deal.

In our investigation, with only one of the six providers it worked out to be cheaper with both handsets to sign up to a contract than pay for the phone direct and take out the Sim-only contract.

The table below displays the 'effective APR', which is the interest rate you could afford to pay on a loan to buy the handset direct, plus a Sim-only deal from the same network. We've compared the costs using similar contract deals from each network.

'Effective APR' of major providers

Network iPhone 6 (16GB) Samsung Galaxy S5
EE (incl T-Mobile & Orange) 48% 23%
Virgin Mobile (non VM customers) 44% 30%
Vodafone 15% 1%
Three 14% Cheaper on contract
O2 8% 1%
Tesco Mobile Cheaper on contract Cheaper on contract
Prices correct as of 11 Dec 2014. Non VM customer = Non Virgin Media customer. 'Effective APR' rounded to nearest %. For full calculations see below.

'We're calling on mobile phone companies to display APRs'

Martin Lewis, creator and founder of, says: "Take out a mobile phone contract and they credit score you, which leaves a footprint on your credit file, plus they're allowed to put defaults on your file if you miss payments.

"It looks like a loan, and it acts like a loan, but – oddly – phone companies don't have to call it a loan. It's about time they had to front up and be honest to people about this.

"We're calling on all mobile phone companies to display APRs on their contracts – and it should be done in a consistent form – without allowing them to jemmy it by artificially hoisting handset prices. The best way would be for regulated intervention.

"In most cases people are far better off to avoid a contract, and simply buy the phone direct and take out a Sim-only deal. If you can't afford to do that, then remembering that a contract is a loan, you should see if you can borrow cheaper.

"The longest 0% spending credit card in the market allows you to borrow for 20 months interest free – so you could use that instead, just ensure you repay before the 0% ends. And to avoid being tempted to then use it for other things once your phone's bought, stash the card in a bowl of water in the freezer."

Some networks quote inflated APRs

We also found that while some networks do state APRs of 0%, these providers often are effectively jemmying the system as their handset list price is often much higher than when buying it direct.

The table below shows the cost of buying an iPhone 6 (16GB) and Samsung Galaxy S5 when buying direct, compared with the cost of buying via three providers which advertise 0% APR on handsets.

Price of handsets where networks display 0% APR

Network iPhone 6 (16GB) Direct price iPhone 6 (16GB) Samsung Galaxy S5 Direct price Samsung Galaxy S5
O2 £629.99 £539 £480 £429
Virgin Mobile (non VM customers) £696 £539 £456 £429
Tesco Mobile £576 £539 £480 £429
Price correct as of 11 Dec 2014. *At the time of writing the iPhone 6 (16 GB) was available from EE Pay-as-you-go for £519.99 (plus £10 compulsory top-up). This is locked to the EE network however, with a fee of £20.42 to unlock.

How did we calculate this?

Here's how we calculated the 'effective APR':

  • Step 1 – Calculated the total cost of the network's two-year contract (including any upfront cost).
  • Step 2 – Calculated the total cost of getting an equivalent Sim-only tariff from the same network over two years and then buying the handset direct from the cheapest retailer.
  • Step 3 – Calculated the difference between figures in Step 1 and Step 2 = figure X.
  • Step 4 – We used our personal loan calculator tool to work out the 'effective APR' using figure X against the direct cost of the handset.

What do the mobile providers say?

A spokesperson from O2 says: "All our O2 Refresh tariffs allow customers to pay cash upfront or spread the cost of the device on a 0% APR Device Plan, with most including a variety of upfront payment options. The APR is clearly visible on the contract and discussed with the customer at point of sale.

"While a total device price may vary between tariffs, every O2 Refresh tariff comes with a rich Airtime Plan of minutes, texts and 3G/4G data that costs less than a SIM-only plan and some (such as our recent 20GB Airtime Plan) include other value added services which aren't available on SIM-only or from our competitors."

A spokesperson for Tesco Mobile says: "Tesco Mobile Anytime Upgrade allows customers to choose how they want to pay for a handset, including the option to spread payments over a period of time on a 0% APR contract.

"Anytime Upgrade transparently shows customers what they pay for within their contract for both device and airtime. If the customer chooses to do so, they can spread the cost of the device over 24 months without the addition of any other finance charge, hence it being 0% APR.  

"To establish APR, there needs to be a reference point which is the price a customer would have paid Tesco Mobile to purchase the handset upfront. We clearly explain APR in our contracts and with customers when they purchase a handset."

Virgin Media director of mobile, Annie Brooks, says: "We are completely upfront and transparent about the total cost of all our top smartphones. We always ensure that customers can clearly see, and where necessary, differentiate between the split and combined monthly costs of their handset repayment and their airtime tariff, allowing them to make a fully informed choice about their phone purchase.

"When combining our top handsets with our flexible airtime tariffs, Virgin Media offers some of the best value deals on the market, including some of the most affordable 24 month contracts on the iPhone 6 and the Samsung Galaxy S5 from any mobile network. Virgin Media is the only network to offer the same airtime tariffs regardless of the handset they are bought with, or if it is bought SIM Only."

Additional reporting by Sam McFaul and Nick Durrant.