A warning has been issued to all drivers who pay for their car insurance on a monthly basis. Consumer watchdog Which? has discovered that some insurance firms are charging annual percentage rates (APRs) comparable to those of expensive credit cards.
High Interest Rates on Monthly Payments
Between February and March 2026, Which? found that several insurance providers were charging APRs above 25%, with some reaching as high as 29.9%. This means that drivers who choose to spread the cost of their insurance are effectively taking out a high-interest loan.
Rocio Concha, director of policy and advocacy at Which?, commented: "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."
Industry Response
A spokesperson for the Association of British Insurers (ABI) acknowledged the financial pressure on households and the importance of spreading costs. They stated: "Premium finance is widely used across the market with charges that can differ between insurers and by product. Our members remain committed to improving outcomes, and this includes being open about the fact that providing this service involves genuine operational costs – including keeping cover in place for a period even when payments are delayed or missed."
The ABI also noted that their premium finance principles require charges to be fair, transparent, and reflective of costs incurred. They highlighted that the Financial Conduct Authority's own market study found premium finance can deliver fair value and that overall costs have fallen since 2022.
Expert Advice
Paying for insurance in one lump sum using savings is generally the cheapest option. Paying by monthly Direct Debit effectively constitutes a high-interest loan, often costing 20%-40% APR.
Martin Lewis, the BBC and ITV star, warned: "For example, if your annual cost is £1,000 and you want to pay monthly, you could pay £95/month, which is £1,140/year (£140 more) at an average APR of 25%. So pay in full, or if you can't afford it, use a credit card with a lower interest rate (or better still, a 0% credit card for spending, ensuring your repayments are big enough to clear it within a year)."
Lewis also advised those who need to spread the cost to watch his message on how to avoid paying interest of nearly 50%.
