Many people are tempted to take out a cellphone contract in order to get the latest device without shelling out a huge sum of money upfront.

These contracts make the phone seem more affordable, but in reality, they cost you significantly more over time.

When assessing the various cellphone contract options, do the maths first. Calculate what the device would cost you in total if you paid cash, or if you paid over 24 or 36 months.

Using the example of a recently advertised iPhone SE, according to the provider the phone would cost R10 500 if bought with cash.

If the customer took a 24-month contract, it would cost R549 per month or R13 200 for the full period. This is 30% more than the cash price.

If the customer took a 36-month contract, the monthly installment would be R429, which is R120 per month less than the 24-month contract, yet over the full period will cost R15 480. This is 50% more than the cash price.

Across all cellphone offers, whether the phone cost R6 000 or R21 000, the same ratio tends to apply. A 24-month contract costs around 30% more than paying cash, and a 36-month contract costs around 50% more than paying cash. Effectively you are financing the device at an interest rate of around 25%.

Consider a sim-only cellphone contract for data

When comparing the numbers, check what a sim-only contract would cost you for the same data or airtime. That will give you a good idea of how much of your monthly installment is going to the device and how much you are paying for the airtime and/or data portion.

The first choice would be to save and buy with cash. If that is not possible, at least avoid purchasing any device over 36 months. Rather buy a less expensive model if you cannot manage the higher monthly installments for a 24-month contract.

The one exception where a contract can save you money, is when it comes to buying data. You can purchase a sim-only contract, which does not include a phone or wifi modem. Cellphone companies are prepared to give customers a far better data deal if they know you are committed to staying with them over a longer period of time.

For example, you can purchase a 3GB SIM-only 24-month contract for R79 a month. If you bought a 3GB data bundle each month from your provider, it would cost around R199 per month. In this case a SIM-only data contract would save you R120 a month.

If you do not want to be tied into a contract, keep in mind that when it comes to data or airtime, the more you buy at one time the more value you get.

For example, over a month you may find you use 1GB of data. However, you tend to purchase 100MB at a time. This costs you R20 for each 100MB you buy. If you do that ten times a month, using 1GB over the month, it ends up costing you R200. Yet if you bought 1GB once off for the month, that would only cost you R85. That is a saving of R115.

The key here is to monitor your data usage, so you don’t use up all the data before month end. You can set your cellphone to notify you if you exceed a certain amount of data usage per day.

This article first appeared in City Press.