Many car insurers continue to charge annual percentage rates (APRs) as high as credit card lenders for customers paying monthly, despite repeated warnings that such charges may be excessive, according to research by consumer group Which?.
The study surveyed 52 car insurers on their monthly payment interest rates. The Financial Conduct Authority’s (FCA) Financial Lives Survey estimates that more than 20 million people use premium finance to pay for insurance, often because they cannot afford an annual lump sum.
Most car insurers charge interest on monthly payments, with only a small number confirming they do not. (Among home insurers, half of those surveyed do not apply interest charges).
The average APR across car insurers was 22.84%. Some providers imposed significantly higher rates, with the most expensive found at One Insurance Solution and The Insurance Factory, where APRs ranged from 30.72% to 34.08%.
These rates are close to those charged by credit card lenders. As of late February, the average purchase APR for a credit card stood at 35.42%, though most (55.3%) cards offer rates below 25%.
A mystery shopping exercise by Which? tested insurers that did not disclose their APRs, obtaining quotes based on a 40-year-old Vauxhall Corsa driver in South London. All but one (John Lewis) of the brands surveyed charged more than 25% APR. The highest rate came from GoSkippy at 28%.
This marks the third time since March 2024 that Which? has requested this data. Among 24 car insurers that disclosed rates in all three surveys, the average APR has dropped slightly, from 23.14% in March 2024 to 21.03% in February 2025. However, some firms continue to charge around 30% or higher.
Which? argues that insurers face lower risk than credit card lenders because non-payment can result in policy cancellation, making high interest rates difficult to justify. The FCA launched a market study into premium finance in 2024, expressing concerns that charges may be disproportionate to the credit risk and cost of service.
Many insurers with the highest APRs are linked to Markerstudy Distribution, a broker within Markerstudy Group. A spokesperson for Markerstudy Distribution said the company had reduced interest rates for several brands and planned further cuts in the coming months.
Which? remains concerned that excessive interest rates unfairly penalise consumers who can least afford them. The FCA, which has described premium finance as a “tax on being poor,” is expected to publish its findings on the issue this summer.
Rocio Concha, Which? Director of Policy and Advocacy, said: “People often don’t pay for car and home insurance in monthly instalments out of choice, but financial necessity. For millions to be hit with excessive extra charges due to their circumstances seems like kicking customers when they are down.
“Encouragingly, the FCA is now looking into this issue. As part of its market study, the regulator must determine fair interest rates by examining profit margins and commission levels – and be ready to take tough action against firms charging excessively high rates.”
FCA – FCA launches premium finance market study alongside new Government insurance taskforce
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Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.