The findings come from an investigation into 30 motor insurance providers, revealing substantial differences in the cost of spreading payments. Around 15 million customers across the UK use monthly payment arrangements, known as premium finance, raising questions about whether current pricing practices treat financially stretched motorists fairly.
Investigation Reveals Interest Rates Exceeding 50% for Monthly Payments
According to Which?, its mystery shopping investigation collected 36 premium finance quotes from 30 insurance providers in August, using the same customer profile throughout. The hypothetical motorist was 42 years old, lived in Sheffield and had been driving for 10 years, with no claims or incidents during the previous five.
The median annual percentage rate (APR) across the quotes was 26.2%, compared with an average credit card APR of 25.9%, based on Moneyfacts data. Interest rates varied considerably between providers, with some offering interest-free instalments while others charged more than 50%. The Sun reported that City Insurance quoted an APR of 53%, followed by UDrive Cover at 50% and Sterling Insurance at 38%. Rightsure charged 34%, while Acorn quoted 23%. City Insurance subsequently said it was reducing its APR to 36%.
These differences translated into substantial additional costs for some customers. Which? identified a Rightsure annual policy costing £2,583.23 upfront that would rise to £2,950.98 when paid monthly, an increase of £367.75.
Not every provider supplied an APR, and some offered financing at 0%. Insurers also told Which? that premium finance carried greater credit risks and that interest rates alone did not provide a complete picture of the value offered to customers. The companies said their financing arrangements were regularly reviewed, potentially allowing interest rates to be reduced.
Consumer Groups Demand Changes As Insurers Defend Monthly Payment Charges
Which? is urging the Government to ban what it describes as two-tier pricing for motor insurance. The organisation also wants insurers to be required to offer monthly payments without charging customers more than those who pay annually. Rocio Concha, director of policy and advocacy at Which?, warned that too many consumers had already been pushed out of driving or into financial difficulty because of existing pricing practices.
James Daley, managing director of Fairer Finance, said: “It can’t be right that the poorest people in our society are forced to pay the most for their car insurance.”. Industry representatives maintain that monthly payment arrangements provide valuable financial flexibility, particularly for households unable to meet annual premiums upfront.
Graeme Trudgill, chief executive of the British Insurance Brokers’ Association, said premium finance helped customers spread insurance costs, while emphasising the need for fair value and transparency.
The Association of British Insurers explained that monthly payments created additional costs for providers, including maintaining cover when payments were delayed or missed. The Financial Conduct Authority has declined to introduce a price cap or prohibit interest charges. It said existing rules had reduced rates by 4.1 percentage points since 2022, saving motorists £8 annually on a typical policy.
