Dean is an award-winning personal finance writer who’s spent over 15 years helping consumers navigate the tangled and fascinating world of insurance.
For millions of people, car insurance is an unavoidable cost of living – and for around half of policyholders, it’s a monthly bill.
Paying in monthly instalments – known as ‘premium finance’ – is often a matter of necessity rather than choice. And with average car insurance premiums having soared in recent years, more and more drivers are likely to be relying on it.
New research by Which? has found that people who choose to pay this way can face annual percentage rates (APRs) of more than 50% and pay hundreds of pounds on top of already expensive premiums.
Here, Which? reveals the extra cost of paying monthly for car insurance and explains why we're calling for an end to unfair charges.
Premium finance is the name for the arrangement where you borrow the year’s premium in advance and repay the loan in monthly instalments. With car insurance, you’ll usually be charged interest for doing this – which means it costs more to pay monthly than paying for the policy upfront.
In August, we reviewed 36 online quotes for a 42-year-old driver living in Yorkshire and found that half carried APRs of more than 25%. The APR is the standard way of expressing the total cost of borrowing when it comes to credit products.
Some quotes carried eye-watering interest rates: seven had APRs of more than 30%, including two that exceeded 50%.
We also compared the total cost of paying for the cover in monthly instalments rather than upfront.
Because of how APRs are calculated, they don’t express the ‘flat’ amount that you pay in interest. For example, a 30% APR doesn’t mean you pay 30% extra overall. But the higher rates we found still meant paying substantially more for the insurance.
With 22 of the quotes, paying monthly ended up costing 10% to 16% more than paying upfront – adding as much as £368 to the total bill.
Only two providers didn’t charge extra if you paid in monthly instalments.
The table shows the 10 quotes where pay-monthly customers were charged the most in our mystery shopping investigation, ranked by the percentage difference between the total cost of paying upfront vs monthly.
| Provider | Paying monthly extra - (%) | Paying monthly - extra (£) | Total cost upfront | Total cost monthly | APR |
|---|---|---|---|---|---|
| Quote Detective | 16% | £245 | £1,511 | £1,756 | Not shown online |
| UDrive Cover | 16% | £95 | £607 | £703 | 51% |
| Sterling Insurance | 16% | £220 | £1,411 | £1,631 | 38% |
| Rightsure - Covea | 14% | £354 | £2.483 | £2,837 | 34% |
| Rightsure - Ageas | 14% | £229 | £1,609 | £1,838 | 34% |
| Rightsure - Sabre | 14% | £368 | £2,583 | £2,951 | 34% |
| City Insurance | 13% | £231 | £1,733 | £1,963 | 53% |
| Acorn | 13% | £169 | £1,330 | £1,499 | 33% |
| A-Choice | 12% | £125 | £1,009 | £1,134 | 29% |
| Aura | 12% | £166 | £1,352 | £1,517 | 29% |
Quotes provided to a 42-year-old living in Yorkshire, insuring a Ford Puma, August 2026. Cash figures and percentages rounded. Our investigation provides a snapshot of the quotes available to one driver, rather than a representative picture of the whole market.
APR is the standard way in which credit costs are summarised. It was designed as a uniform way of presenting the total costs of borrowing, inclusive of interest and flat fees, to help customers compare the costs of different forms of credit.
Broadly speaking, quotes in our analysis with the highest APRs also had the highest overall costs, but APR isn't a perfect measure of how much extra customers will pay. Differences in how finance deals are structured, and the methods providers use to calculate them, can mean they don't always reveal exactly how individual companies compare.
In February and March of this year, we surveyed 61 car insurance firms asking for the APRs charged to customers who pay monthly.
Of the 48 car insurers that revealed their APRs in our survey, the average was 23% – with none charging more than 30%.
The figures from our new mystery shopping research aren’t directly comparable as they’re based on quotes offered to one customer through a comparison website. However, they show that – despite some positive developments in the industry – some customers are still facing much higher rates.
We’ve been campaigning for better value for insurance customers for more than two years, and have run four market surveys to determine what rates are being charged to monthly payers, publishing the full results each time.
During that period, we’ve seen many providers reduce their APRs – with the average among firms surveyed in both April 2024 and 2026 down by around five percentage points, on average.
We’ve also seen industry regulator, the FCA, conduct a market study (an investigation into how well a market is working) exploring the value for money that customers were receiving. It found that some providers – particularly some brokers – were earning substantial profits from premium finance, and it intervened directly to make four firms reduce their rates. In a final report this year, it concluded that no broader actions or further investigation were needed.
Despite the positive trend, many firms continue to charge outrageous APRs that arecomparable to pricier credit cards. As of early October, the median credit card APR was 25.9%.
Unlike credit card borrowing, premium finance is linked to an insurance policy that can ultimately be cancelled if customers fail to keep up with payments. We believe this raises questions about whether the high interest rates charged by some firms are justified.
We don’t think the FCA’s light-touch approach has been enough.
Rocio Concha, director of policy and advocacy at Which?, said:
'Too many consumers have already been pushed out of driving or into financial peril because of these unfair pricing practices.
'Our latest investigation exposes the consequences of the regulator shying away from its responsibility to ensure competition works for consumers.
'The Prime Minister has pledged to create more "breathing space" for consumers, and that’s why we’re urging him to announce a ban on two-tier pricing for motor insurance in the upcoming Budget. We believe it is the best way to create a fairer, more competitive system that doesn’t punish the customers least able to pay.'
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When we contacted the providers named in our table, four responded:
City Insurance told us that since the FCA’s review it has ‘agreed new terms which will reduce [its] representative APR from the 53.03% as identified by Which? to approximately 36%, based on a flat-rate charge of 13.25%. The new terms will be introduced shortly once the revised contractual arrangements have been completed.’ It also commented that methodologies used in calculating APRs can differ between lenders, leading to ‘misleading or confusing’ comparisons - believing it more important for customers to understand the interest rate and total cost being charged.
Rightsure, which was unable to comment on the specific quotes obtained in our research, said it didn’t control all of the factors contributing to the customer’s total price, but argued that APR alone wasn’t a fair way to measure value. It said that when factors, such as the cost of providing premium finance, discounts provided to monthly paying customers, and the cost of supporting customers who choose to pay in instalments were taken into account, its assessment ‘indicates that the net profit generated from premium finance is approximately 0.4%, equivalent to around 40p for every £100 of financed premium.’
Ageas (referencing the Rightsure quote), told us that, as an insurer, it is responsible for the product – which it is ‘confident delivers fair value for customers’ – but that the finance arrangement is provided by Rightsure.
Sterling Insurance told us that as a non-standard specialist insurance provider, many of its customers have higher-than-usual levels of credit risk, defaults and collection costs – making a higher APR necessary. It said it reviews its premium finance arrangements and carries out fair value assessments at least annually, and added: ‘We also recognise the importance of supporting customers who experience financial difficulties’. It said that it takes ‘a proactive approach’ to helping customers who have fallen into arrears to maintain their insurance cover. ‘Where our experience and underlying costs allow us to reduce the APR or charges while continuing to provide the facility sustainably to this customer group, we will do so.’
