Millions of car and home insurance policyholders across the UK are facing annual percentage rates (APRs) of 25% or more when opting to pay their premiums monthly, according to a recent survey. Figures from the Financial Conduct Authority (FCA) indicate that around 23 million car and home insurance policies are paid for in instalments, often due to the upfront cost of annual premiums being unaffordable for many.
The practice of paying insurance in monthly instalments is essentially a credit arrangement, known as 'premium finance', where the insurer loans the customer the annual premium. Interest rates for this service can vary significantly, ranging from 0% to almost 30%. The survey, conducted in February and March 2026, found that the average car insurance rate was 23%, while for home insurance, it stood at 21%. These rates are broadly comparable to typical credit card APRs, with the median and most common credit card APR at the end of April being 24.90%.
Despite a campaign for better value for insurance customers over the past two years, and some firms reducing their rates, many providers still impose high charges. Out of 48 car insurers disclosing their rates, 20 charged 25% APR or more. For home insurers, seven out of 38 fell into this category. This contrasts sharply with the fact that two car insurers (Hiscox and NFU Mutual) and almost half (15 out of 38) of home insurance providers offer interest-free monthly finance options.
Concerns have been raised that many customers are receiving poor value for an essential product, particularly those already struggling with the cost of living. Insurers, like other lenders, incur administrative costs and potential losses from defaults when providing finance. However, unlike a credit card or bank loan, insurers are unlikely to lose the full annual premium if a customer defaults, as they can cancel the policy.
The FCA has also conducted a market study into premium finance, identifying that some firms, especially brokers, were earning significant profits from these arrangements. While it noted that average APRs had fallen in recent years and it had intervened directly with 10 firms to reduce high rates, the FCA concluded that broader intervention across the market was not necessary at that time.