Millions of drivers have been overpaying for monthly car insurance premiums through "undisclosed charges" with calls for the UK's financial regulator to act.
It comes as a report found that a huge portion of car insurers have been charging annual percentage rates (APRs) equivalent to pricey credit card lenders for customers to pay for coverage monthly.
The survey revealed that most car insurers charged monthly interest with drivers left unsure what the exact cost breakdown for the extra payments was.
The average APR across car insurers surveyed was 22.84 per cent with the highest APRs charged by One Insurance Solution and The Insurance Factory.
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A report from Which? found several insurers charged more than 25 per cent in APR rates
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APR is the total cost of borrowing money over a year, including interest and any associated fees. The rate is expressed as a yearly percentage and is often found in credit card repayments as well as car loans. Most recently car insurers have been charging APR on monthly car insurance premiums.
One of the biggest car insurance providers Aviva said in a statement to the Financial Times: "We take into account lots of different factors when calculating a premium that reflects each customer’s risk.
"If a customer then chooses to pay monthly, alongside their insurance premium they are also provided with an APR which represents the cost of providing credit."
The insurer added that it views its premiums and APRs as proportionate and offers fair value for customers. "The vast majority of customers purchase motor insurance through price comparison sites which use a standard set of questions. None of these questions are hidden," they added.
Among the 24 car insurance firms that disclosed rates, the average APR was recorded as falling from 23.14 per cent in March 2024 to 21.03 per cent in February 2025, according to Which? research.
However, there remain concerningly high rates around or above 30 per cent which can see drivers pay extortionate amounts for car insurance coverage. In response to the report, a Markerstudy Distribution spokesperson told Which? that it had reduced rates for several of its brands.
They added: "We strive to provide good customer outcomes and continually review our products and rates of credit to ensure we are offering fair value to our customers. We are working to align our approach to APRs across our portfolio as we continue our integration process and have reduced rates for several of our brands, with others planned in the coming months."
Meanwhile, Admiral said it provided "competitive cover" for the largest number of customers and uses a range of factors to ensure that the premium charge "best reflects the risk that a customer presents".
Rocio Concha, Which? Director of Policy and Advocacy, shared that people often don’t pay for car insurance in monthly instalments out of choice, but "financial necessity".
She added: "For millions to be hit with excessive extra charges due to their circumstances seems like kicking customers when they are down - and this is exactly the kind of unfairness the regulator should have in its sights.
"Encouragingly, the FCA is now looking into this issue. As part of its market study, the regulator must get to the bottom of what fair rates of interest are by gathering information from firms on profit margins and commission levels - and ultimately be prepared to take tough action against firms continuing to charge excessively high rates of interest on monthly repayments."
The consumer champion has now called on the Financial Conduct Authority to not hesitate and take action against firms found to be falling short of their regulatory requirements.
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Drivers who pay monthly for car insurance premiums have been hit with extra APR costs
GETTYIt warned: "Which? believes the regulator needs to get to the bottom of what it costs firms to charge customers interest to pay monthly and whether this represents fair value, as per the requirements of firms under the Consumer Duty."
