Millions of motorists and homeowners are being forced to pay up to £150 extra annually for insurance simply because they're unable to settle the bill in one payment, according to new research from consumer group Which?.
High Interest Rates on Monthly Instalments
Despite years of regulatory pressure to reduce costs, numerous insurers continue to impose interest rates approaching 30% APR on monthly repayments. The findings reveal that households forced to spread the cost of essential bills could be facing rates comparable to, and occasionally exceeding, those levied by credit card providers.
Approximately 23 million car and home insurance policies are settled through monthly payments, according to Financial Conduct Authority (FCA) data, making premium finance amongst the most common forms of consumer credit in Britain.
Which? Investigation Findings
Which? examined 61 car insurers and 50 home insurers earlier this year, discovering some companies imposing charges as high as 29.9% APR for customers opting to pay in instalments rather than clearing the full annual premium upfront.
For a motorist facing a £1,000 annual insurance premium, monthly payments at 29.9% APR could add approximately £150 to the total cost, meaning a policy priced at £1,000 upfront might ultimately cost around £1,150 across the year. The consumer group discovered that amongst insurers disclosing their rates, 20 car insurance companies and seven home insurance firms were imposing at least 25% APR.
In contrast, the average car insurance instalment rate stood at 23%, while the average for home insurance was 21%. That is only marginally below the typical credit card APR of 24.9%.
Criticism of Insurer Practices
Campaigners contend such fees are hard to justify given that insurers shoulder less risk than many traditional lenders. Unlike banks providing personal loans, insurers can frequently withdraw cover if customers fail to maintain repayments, thereby minimising potential losses.
Which? also pointed out considerable variations across the sector, with certain insurers providing interest-free monthly payment arrangements. The consumer organisation said charges have decreased since it started monitoring the market in 2024, with average fees dropping by approximately five percentage points.
Regulatory Response
The FCA has previously scrutinised the premium finance market and determined that broader intervention was not presently necessary, observing that average APRs had declined in recent years and that some firms had lowered rates following regulatory examination. Nevertheless, Which? maintains millions of customers are still being overcharged.
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."
Impact on Households
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.
