Consumer group Which? analysed the market and found that many insurance providers are charging APRs that rival expensive credit cards. Paying monthly is often the only realistic option for households facing financial pressure, meaning those who can least afford it are paying significantly more for their car insurance cover.
The cost of paying for insurance monthly
Consumer group Which? contacted 61 car insurance brands and found that of the 48 that responded with their rates, the majority charged more than 25% APR. Several brands, including Dial Direct, The Insurance Factory and Zenith Insurance, charge 29.9% APR, while others, such as the Co-operative Insurance, charge 29.89%. Across all of the providers analysed, Which? found that the average interest rate charged to customers paying monthly is 23%.
Rocio Concha, director of policy and advocacy at Which?, highlighted the impact this has on consumers, saying, "Millions of motorists rely on monthly payments to afford essential car insurance cover, yet many are still being charged interest rates comparable to an expensive credit card. While some of the worst offenders have reduced their rates following regulatory scrutiny, the FCA’s weak approach appears to have been taken as a green light by the industry to keep charging extortionate rates. This means those who can least afford it are still paying significantly more simply because they can't pay upfront. The FCA must take further action to drive down rates across the market and ensure all consumers receive fair value".
A spokesperson for the Association of British Insurers (ABI) said, "Our members remain committed to improving outcomes, and this includes being open about the fact that providing this service involves genuine operational costs – including keeping cover in place for a period even when payments are delayed or missed."
How to avoid high monthly insurance fees
While car insurance is a legal requirement, there are ways to reduce the overall cost of your premium and avoid paying high interest rates.
- Pay annually if you can - If you have the savings available, paying for your insurance in one lump sum is almost always the cheapest option. This eliminates the interest charges entirely.
- Consider a 0% purchase credit card - If you need to spread the cost, you could pay the annual premium upfront using a 0% purchase credit card. This allows you to pay off the balance over several months without incurring any interest. It is important to clear the balance before the promotional period ends, and you should ensure that taking out new credit is the right decision for your financial situation.
- Shop around for lower rates - Not all insurers charge high interest rates. A small number of providers, including Hiscox and NFU Mutual, do not charge any interest for monthly payments. When comparing insurance quotes, look closely at the total amount payable, rather than just the monthly figure, to see exactly how much extra you are being charged.
- Improve your credit score - Because paying monthly is a form of credit, insurers may check your credit history. Maintaining a healthy credit score can sometimes help you access better terms across your finances.
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