Car insurance warning issued as motorists ‘overpaying by 30%’

Certain car insurance customers may be paying up to 30% more to use the roads, in a major blow for cash-strapped Britons. Motorists paying monthly for their insurance policies are being charged up to 30% more than those paying upfront.

New analysis from Which? found that firms were chatting APR rates of between 25% and 29.9% between February and March 2026. Paying for car insurance in one go is cheaper because monthly payments function like a loan. Insurers lend drivers the full amount to pay the annual premium and then charge road users interest on it every 30 days.

There are fears that drivers were effectively paying a “poverty premium”, with many individuals unable to afford to pay upfront. Which? said they have long been concerned that customers were receiving poor value for an essential product and were struggling with the costs.

Rocio Concha, director of policy and advocacy at Which? said: “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.”

However, the situation has seemingly slightly improved with some firms charging road users as much as 35% APR just two years ago. A spokesperson for the Association of British Insurers (ABI) stressed that the added costs slapped onto drivers must always be fair and transparent.

The ABI said: “The industry recognises that many households are under financial pressure, and it understands why spreading the cost of cover is essential for many motorists. Premium finance is widely used across the market with charges that can differ between insurers and by product.

“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.

“Our premium finance principles make clear that any charges must be fair, transparent, and reflective of the costs incurred by insurers. The FCA’s (Financial Conduct Authority’s) own market study found that premium finance can deliver fair value for consumers and that the overall cost of premium finance has fallen since 2022.”