Rise in customers borrowing to pay for insurance

While reduced inflation gives some hope of relief in the cost of living squeeze, new research shows more of us leaning on credit to afford our insurance as premiums continue to rise.

Some 71% of adults currently borrow money to pay for their insurance - a figure that has risen from 70% last year and 66% in 2022.

This is according to new annual survey findings from Premium Credit - a provider of 'premium finance' (the term for splitting your insurance bill into monthly payments, rather than paying the year's cost upfront).

Here, Which? explains the types of insurance people are turning to credit for and how to keep your costs down.

Compare car insurance deals

Check Which? insurance ratings and compare deals using the service provided by Confused.com

Angebot anfordern

The policies increasingly going on credit

Premium Credit surveys, carried out each March, show that increasing numbers of car, pet, travel and 'specialist' insurance customers are using credit of some kind - including premium finance, credit cards, and borrowing from friends and family - to pay for their cover compared to last year. 

The biggest increase was among travel insurance customers - with car insurance close behind.

• Find out more: what's happening to car and home insurance prices

Switching how you pay

Paying monthly is most common when it comes to car and home insurance. And with costs for both having risen significantly in recent years, policyholders who'd historically paid upfront have switched to paying monthly to keep costs manageable. 

Since March 2023, one in seven drivers moved from paying annually to paying in instalments, while 11% of home insurance customers did likewise. 

Far fewer customers went the other way - with 8% of drivers and 7% of home insurance customers switching from paying monthly to paying upfront.

• Find out more: what's happening to home insurance prices?

Why customers borrow

This year’s index shows customers estimate they borrow an average £302 to pay for insurance.

The main reasons given for using credit were the ongoing cost of living squeeze - with those surveyed citing financial pressures, rising premiums and rising energy bills. Over a third of those using credit said the amounts they'd borrowed had gone up over this year compared to the previous 12 months.

Figures from the Association of British Insurers (ABI) show that between Jan-March 2023 and 2024, car insurance premiums rose by 33%, while home insurance premiums rose by 19%.

• Find out more: what's happening to car insurance prices?

Premium finance can be poor value

According to Premium Credit's research, a quarter of customers using credit to pay for insurance make use of premium finance to split the bill. This involves splitting your insurance bill into monthly payments, rather than paying the year's cost upfront

However, the interest charged by some insurers has recently been in the spotlight - with a Which? Money investigation finding some car insurance firms applying interest rates of nearly 40% APR (Annual Percentage Rate).

Key figures at the FCA have criticised the additional expense it adds to insurance for poorer customers, and last month the ABI announced a plan to tackle premium finance costs and to make them more transparent.

Keeping your costs down

Premium finance isn't the only way customers borrow to manage their insurance bills. Some 35% of those who borrow rely on credit cards - while 6% use personal loans and 5% borrow from friends and family.

If you need to use credit, it is worth considering the available options. For example, one alternative to using premium finance could be buying the insurance on an interest-free credit card and paying off a 12th of the card's balance each month.

• Find out more: best credit card deals

Make sure you get the best deal first

But before getting to the point of choosing how to fund the premium, it's crucial to ensure you're getting the best available price to start with. 

See our packed guides on finding cheap car and home insurance for tips on how to do this. 

Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665  and is an Introducer Appointed Representative (FRN 610689) of the following:

1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 

2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts.  LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.

3. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.

4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.

Other financial services:

Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. 

If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer. Please note that a link alone does not constitute an endorsement by Which?.