Car insurers criticised for high-cost monthly payment plans that burden low-income drivers
A consumer watchdog found that many UK car insurers charge steep interest on monthly premiums, effectively imposing a “poverty premium” on cash-strapped customers.
Which? examined premium-finance arrangements used by about 15 million UK motorists and identified five insurers that charge interest rates higher than most credit cards, the top rates reaching over 50% APR. The study used a standardized driver profile - a 42-year-old from Sheffield with a clean claims record - to obtain quotes from 30 companies. Monthly payment plans added up to several hundred pounds to the annual premium, while only two firms offered zero-interest options, which may not be the most affordable overall.
The Financial Conduct Authority had earlier ruled out a price cap or ban on such interest, a decision the watchdog says leaves vulnerable drivers exposed. Rocio Concha of Which? urged the Prime Minister to address the two-tier pricing in the upcoming budget. Insurers such as City Insurance said they are revising their terms to lower the APR.
Why it matters
High-interest monthly car-insurance plans increase costs for financially vulnerable drivers, raising concerns about fairness and consumer protection.
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