Millions of motorists and homeowners are paying up to £150 more a year for insurance because of how they pay, new research suggests. Many insurers are charging interest rates of nearly 30% APR on monthly repayments despite years of pressure from regulators to bring costs down.
Which? Survey Reveals High APR Rates
The findings by consumer group Which? mean households struggling to spread the cost of essential bills could be paying rates comparable to, and in some cases higher than, those charged by credit card companies. Around 23 million car and home insurance policies are paid for monthly, according to figures from the Financial Conduct Authority (FCA), making premium finance one of the most widespread forms of consumer borrowing in Britain.
Which? surveyed 61 car insurers and 50 home insurers earlier this year and found some firms charging as much as 29.9% APR for customers who choose to pay in instalments rather than settle the full annual premium in one go. For a driver with a £1,000 annual insurance bill, paying monthly at 29.9% APR could add roughly £150 to the overall cost, meaning a policy costing £1,000 upfront could end up costing around £1,150 over the year.
Industry Comparison and Criticism
The consumer group found that among insurers that disclosed their rates, 20 car insurance providers and seven home insurance providers were charging at least 25% APR. By comparison, the average car insurance instalment rate was 23%, while the average for home insurance was 21%. That is only slightly below the typical credit card APR of 24.9%.
Campaigners argue such charges are difficult to justify because insurers face less risk than many conventional lenders. Unlike banks offering personal loans, insurers can often cancel cover if customers stop making repayments, limiting potential losses. Which? also highlighted stark differences across the industry, with some insurers offering interest-free monthly payment options.
Regulatory Response and Consumer Impact
The consumer group said rates have fallen since it began tracking the market in 2024, with average charges dropping by around five percentage points. The FCA has previously examined the premium finance market and concluded that wider intervention was not currently required, noting that average APRs had fallen in recent years and that some firms had reduced rates following regulatory scrutiny. However, Which? believes millions of customers are still paying more than they should.
Rocio Concha, director of policy and advocacy at Which?, said: "Millions of motorists rely on monthly payments to afford essential car insurance cover, yet many are still being charged interest rates comparable to an expensive credit card. While some of the worst offenders have reduced their rates following regulatory scrutiny, the FCA's weak approach appears to have been taken as a green light by the industry to keep charging extortionate rates. This means those who can least afford it are still paying significantly more simply because they can't pay up front. The FCA must take further action to drive down rates across the market and ensure all consumers receive fair value."
Advice for Consumers
The warning will add to concerns that households on tighter budgets often end up paying more for essential services than those able to pay large bills upfront. Consumer experts say anyone renewing their insurance should check not only the headline premium but also the interest rate charged for paying monthly, as the difference can amount to hundreds of pounds over several years.
