The most recent Financial Lives Survey from the Financial Conduct Authority (FCA) estimated that more than 20 million people pay for insurance using premium finance, with the main reason being that they struggle to afford the full cost of cover for the year upfront.
Which? asked 52 car insurers and 46 home insurers what rates of interest they charged customers to pay for cover monthly.
The vast majority of car insurers charge interest to pay monthly, with only a small proportion saying they didn’t. Among home insurers, half of providers responding to the survey said they don’t charge interest.
Which insurers charge the highest APRs?
Which? found the average APR across car insurers was 22.84%, while it was 21.59% for home insurers.
The highest APRs were charged by One Insurance Solution (for home insurance) and The Insurance Factory (car insurance). Both charged between 30.72% and 34.08%, rates that Which? noted are comparable to credit card lenders.
How life insurance can benefit your health and wellbeing over the decades
Sponsored by Post Office
Which?’s researchers also conducted a mystery shop of car insurance providers that either did not respond or disclose their APRs in its survey. It obtained quotes as a 40-year-old Vauxhall Corsa driver based in South London.
All but one (John Lewis) of the brands that quoted the mystery shopper had APRs higher than 25% APR. The highest came from GoSkippy, which charged 28% APR.
The latest survey was the third time Which? asked firms to provide APR data since March last year. Among the 24 car insurance firms that disclosed rates in all three surveys, the average APR has reduced slightly – down from 23.14% in March 2024 to 21.03% in February 2025. However, there remain concerningly high rates – in some cases, more than 30%.
High charges compared to credit risk
Which? said such high rates of interest were difficult to justify, as insurers have the option to terminate an insurance policy if premiums are not paid.
The consumer champion noted that the FCA said that when it launched a market study into premium finance last year, it was concerned with “charges potentially being too high relative to the credit risk and cost of providing the service”.
Most brands with the highest APRs on repayments were connected to broker Markerstudy Distribution, and its parent organisation Markerstudy Group.
A spokesperson for Markerstudy Distribution said: “We understand the importance of offering premium finance to help customers purchase insurance products, particularly in today’s market. We strive to provide good customer outcomes and continually review our products and rates of credit to ensure we are offering fair value to our customers.
“We are working to align our approach to APRs across our portfolio as we continue our integration process and have reduced rates for several of our brands, with others planned in the coming months.”
Insurers with lower – or zero – interest rates
Which? found that three insurers (1st Central, Admiral, and Hastings Direct) decreased their APRs between August 2024 and February 2025.
Ecclesiastical stopped charging interest altogether at the beginning of March, having previously charged between 8.26% and 13.44%.
A spokesperson from Ecclesiastical said: “We know customers continue to face increases in the cost of living, and this includes the cost of insurance premiums. At Ecclesiastical, we’re committed to putting customers first, and by removing the interest charges, we’re helping to make our household premiums more affordable for those customers who need to spread the cost.”
Which? said Ecclesiastical’s decision means there are now 19 providers that do not charge interest – and this raises questions about why other firms cannot follow suit.
‘A tax on the poor’
The FCA has previously called premium finance a “tax on being poor”. It is currently conducting a market study into this pricing practice, with its findings expected in summer.
Rocio Concha, Which?’s 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 – and this is exactly the kind of unfairness the regulator should have in its sights.
“Encouragingly, the FCA is now looking into this issue. As part of its market study, the regulator must get to the bottom of what fair rates of interest are by gathering information from firms on profit margins and commission levels – and ultimately be prepared to take tough action against firms continuing to charge excessively high rates of interest on monthly repayments.”
