'Ban extortionate premiums on pay-monthly car insurance,' urge campaigners – something MSE has long warned about
Calls to ban insurers from charging motorists a "poverty premium" when they pay for their car insurance on a monthly (instead of an annual) basis have been reignited by consumer group Which?. It's a long-standing issue that MoneySavingExpert.com (MSE) founder Martin Lewis has warned about for years. Here's what's happening.
Insurers charge up to £370 a year more to pay monthly, Which? finds
If you pay for your car insurance monthly, you're effectively taking out a loan to cover the cost of your annual policy – often with hefty interest added.
A new mystery shopping investigation by consumer group Which? has found that some insurers have been charging motorists up to £370 extra a year for doing this, with interest rates reaching as high as 53% APR.
Which? gathered quotes from 30 insurance providers and found that five were charging what it described as "extortionate" interest rates. The highest APR found was 53% – more than double the median credit card APR of 25.9%.
Meanwhile, a £2,583.23 annual policy from one provider increased to £2,950.98 when paid monthly – an extra £367.75.
Which? is now calling on the Government to ban insurers from charging extra for monthly payments.
Martin Lewis has long warned about the high costs of paying monthly
MSE and Martin Lewis have warned for years about the high interest rates charged to motorists who pay monthly for their car insurance. In October 2024, our research found some insurers charging nearly 50% APR for monthly payments.
Watch Martin explaining why paying monthly can be an expensive way to buy car insurance, and what motorists can do to avoid high interest charges in the video below. Note: The figures and APRs cited were correct at the time of recording in October 2024.
Full video transcript
Martin Lewis: "Do you pay for your car insurance by monthly direct debit? If you do, beware, because in reality it's a loan.
"I'm Martin Lewis from MoneySavingExpert.com, and I recently did a poll on this. I was quite surprised to find that one in three people pay this way. It's something I've been warning about for a long time, so I want to explain it to you and talk about ways you may be able to cut the cost.
"First of all, if you choose to pay by monthly direct debit, in practice, what usually happens is the car insurance firm gets a finance firm to pay annually for you. But then the finance firm is effectively lending you the money over a year, and you pay it back in 12 monthly instalments. Or, if you've done it new, you pay a deposit and 10 instalments, plus interest.
"And the interest rates are high. I'll run through some. Direct Line: 23% annual percentage rate (APR), Aviva: 16%, Esure: 26%, Hedgehog: 44%, Tesco: 22% and Beam, part of The AA: 26%.
"In fact, I don't know of any car insurers that don't have a finance firm charging interest for monthly direct debit. There may be one, but I don't know of one. Usually, it's 10%, 20% or more. Those are high rates of interest, often higher than a typical high street credit card.
"So what's the alternative? Well, if you're lucky enough to have the cash, then just pay annually upfront. One lump sum, no interest. But of course, many people doing this won't be able to do that.
"So the first thing I would look at is getting yourself a 0% purchases credit card. That's a type of credit card that allows you to spend on it interest-free for a set period of time, usually a year or two. You'll still need to make minimum repayments, I should note.
"So get yourself one of those cards, work out what the annual payment is, divide it by 12 and pay it off in a year. You'll pay no interest whatsoever. Don't spread the cost over a longer period because, by then, you'll have next year's car insurance to pay for.
"Now, I need to be careful doing this because credit cards can be dangerous for willy-nilly spending. This is a specific purpose you're using it for, to save you money. It's planned, it's budgeted for and it's affordable because you'd be paying more by monthly direct debit anyway.
"So it's a good use of a credit card, but don't let that tempt you into using credit cards for other purposes. And just to say, there's a full guide to 0% purchases cards on MoneySavingExpert.com.
"So what if you're not going to be accepted for a 0% purchases card? By the way, use an eligibility calculator to see if you'll be accepted.
"Well, if not, then if you've got a high street credit card, or you can apply for a high street credit card, even if it's at, say, 18% interest, you want to compare its interest rate, its APR, to what the APR of paying by monthly direct debit is.
"If the credit card's APR is cheaper, then pay on the credit card and pay it back by monthly instalments. Even better, if you can afford to pay a bit more off and repay it more quickly, that will cut the total amount of interest you'll pay.
"Now, we do have to watch out in case there are any credit card transaction charges that might add a percent or two. So you've just got to factor that in when you're looking at the difference between the monthly direct debit APR and the credit card APR.
"If you can't do that, then it gets more of a struggle. If you're not going to be accepted for other forms of credit, in that case, monthly direct debit, if you can't afford to pay upfront, is probably going to be your only option.
"But the main point of doing this video is to make sure you understand what you're doing and that you've checked out whether the other options will work for you first.
"I think that's probably about it from me, except to say, if you're looking to cut the cost of your car insurance – and boy, has that gone up a lot over the last year or two, we've seen huge rises – then we do have a tool called Car Insurance Compare+ on MoneySavingExpert.com.
"That doesn't just give you a comparison result and tell you what other comparison sites you should be trying, but there's a whole host of tips and tricks, including when to get the insurance, so you can slice those costs.
"So do give Car Insurance Compare+ on MoneySavingExpert.com a try too. That's it from me."
The financial regulator stopped short of a cap or ban on interest
The findings from Which? come just months after the Financial Conduct Authority (FCA) concluded a two-year study into the cost of paying monthly for insurance.
In its February 2026 report, the financial regulator found that average interest rates had fallen in recent years, but acknowledged that some firms continued to charge high prices.
However, it ruled out introducing a price cap or banning interest charges altogether, arguing that this could push up insurance premiums or make it harder for some people to get cover.
Instead, the FCA said it would continue monitoring prices and take action against individual firms where necessary.
How to avoid paying high interest on car insurance
If you're currently in an expensive monthly car insurance agreement or you are looking to renew your car insurance, here are some things to consider.
-
Can you pay upfront? It's usually best to pay for your car insurance upfront if you can. This way you'll avoid the expensive APRs that insurance companies often add to monthly repayments.
-
If you need to spread the cost, consider using a 0% spending credit card. You'd use the card to pay for your car insurance upfront, then spread the cost through your interest-free monthly credit card repayments. Just make sure you meet the minimum monthly repayments and clear the balance before the 0% period ends. For more help and best buys, see our 0% spending guide.
-
Using a standard credit card may still be cheaper than paying monthly through your insurer. If you can't get a 0% spending card, a standard credit card could still work out cheaper than paying monthly through your insurer. Just ensure you compare interest rates, and can afford to make the monthly card repayments.
Use our Credit Card Eligibility Calculator to find your acceptance chances without it impacting your credit score.
If you won't be accepted for new credit, car insurance via monthly Direct Debit may be your only option. If this is the case, make sure you check out our Car Insurance Compare+ tool to find the cheapest quotes.
Share this guide?
Latest weekly email
Clever ways to calculate your finances
