Some car and home insurers still charging customers ‘exorbitant’ interest rates on monthly premiums, says Which?

Which? has published updated research information in relation to insurer premium finance interest rates in home and motor insurance, continuing to put pressure on the FCA whilst the regulator undertakes its premium finance Market Study. 

The updated research asked 52 car insurers and 46 home insurers what rates of interest they charged customers to pay monthly for cover. The research found that some car and home insurers are still charging annual percentage rates (APRs) equivalent to typical credit card lenders for customers to pay for cover monthly, despite reminders and commentary that this could be excessive.

The FCA Financial Lives Survey estimates over 20 million consumers use premium finance to pay for insurance, with many unable to afford the annual cost of cover upfront.

The average APR across car insurers was 22.84%, with the average APR across home insurers being 21.59%- however, a number of providers charge more.

The highest APRs were between 30.72% and 34.08%, and 22 of the 40 motor insurance providers which responded reported APRs in excess of 20%.

According to Which?, these rates are comparable to credit card lenders, with the average purchase APR for a credit card being 35.42% in late February 2025. Although, on the majority of cards (55.30%) the rate is under 25 per cent. 

This is the third time Which? has requested this data since March 2024. Among the 24 car insurance firms which 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.

Thirty home insurers responded to surveys conducted in August 2024 and February 2025. Of these, three insurers decreased their rates during this period, and one stopped charging altogether.

All but three of the car insurers who responded charge extra for paying in instalments. By contrast, half of home insurance firms charge the same price whether you pay all at once or in monthly instalments.  Among firms that do charge, rates range widely from 12% to over 30%.

Which? have reiterated that the risk to insurers is much smaller than for credit card lenders because non-payment can lead to a termination of the policy, which, according to the consumer watchdog, renders such high rates of interest unjustifiable. Upon launching its market study into premium finance last year, the FCA also expressed concern regarding ‘charges potentially being too high relative to the credit risk and cost of providing the service’. 

With the majority of consumers unable to pay for the annual cost of cover upfront, and with home insurance often being a prerequisite for a mortgage application, and car insurance a legal requirement, Which? has suggested that consumers who can least afford the cost are being charged excessive rates for what is a financial necessity.

The consumer watchdog also questioned whether charging consumers interest to pay monthly represents fair value and is alignment with firm obligations under the Consumer Duty.

The FCA previously branded premium finance a ‘tax on being poor’. The regulator is currently undertaking a market study into pricing practices in firms, with findings expected to be published in summer 2025.