Which? research finds monthly car insurance customers face interest rates up to 53%

Which? published research on 14 October 2026 finding that some motor insurers charge interest rates as high as 53 per cent to customers who pay for cover in monthly instalments rather than annually, adding as much as £367.75 to an annual bill¹. The consumer organisation collected 36 premium finance quotes from 30 providers between 26 and 31 August, using a single customer profile: a 42-year-old driver in Sheffield with a Ford Puma, seven years' no-claims discount and 7,000 miles a year¹. It is calling on the government to ban insurers from charging extra for monthly payments, alongside a requirement that motor insurers offer a pay-monthly option¹.

The highest APR found was City Insurance at 53 per cent, followed by UDrive Cover Ltd at 50 per cent, Sterling Insurance at 38 per cent, Rightsure at 34 per cent and Acorn at 33 per cent¹. City Insurance told Which? it is reducing its APR to about 36 per cent under new terms to be introduced shortly¹. The median APR across all 36 quotes was 26.2 per cent, against a market-wide median credit card APR of 25.9 per cent as of October 2026¹. Santander and the Post Office both charged 26.5 per cent, adding £70.51 and £92.07 respectively¹. Only Marshmallow and Motorcade charged 0 per cent, and two providers did not give APR figures despite offering premium finance¹.

Source: Which? mystery shopping, quotes gathered 26 to 31 August 2026¹

Which? said the Financial Conduct Authority concluded its market study in March 2026 and ruled out a price cap or ban on charging interest for pay-monthly policies, citing falling rates worth an average £8 a year per policy and direct challenges to firms that cut average rates from 37.6 per cent to 30.5 per cent¹. Which? estimates 15 million UK customers use premium finance for motor insurance¹.

Fair By Design, responding to the research on the same day, said the findings come six months after the FCA's final report on premium finance, which it says acknowledged the market is highly profitable but chose not to set new market-wide rules².

Why it matters for households

Motor insurance is legally required to drive, and Which? says 67 per cent of people rely on cars to commute¹. Paying monthly through premium finance means borrowing the annual premium and repaying it in instalments, so the total cost of car insurance is higher than the quoted annual price. The extra amounts found ranged from £70.51 at Santander to £367.75 on one Rightsure quote, where a £2,583.23 annual policy became £2,950.98¹. Quote Detective added the most proportionally, £244.76 or 16.20 per cent, on a £1,511.27 annual premium, without showing an APR online¹.

Which? cites FCA research that young motorists, single parents and renters are more likely than the average adult to use premium finance¹. It also cites FCA findings that average profit margins on premium finance were 31 per cent in 2024, against 3 per cent for motor insurance policies¹. The rates apply to new or renewed policies taken out on monthly terms; the research does not report how many existing customers hold policies at these APRs.

What happens next

Which? is urging the Prime Minister to announce a ban on two-tier pricing for motor insurance in the upcoming Budget¹. City Insurance said its reduced APR of approximately 36 per cent will be introduced shortly once revised contractual arrangements are completed¹. The FCA has not announced further market-wide rules; Fair By Design says it has been pressing the regulator to keep publishing the outcomes of its supervisory engagement². No date has been reported for any government decision.