About half of the drivers on the road are paying too much for their car insurance because they are being charged extra to pay monthly.

Most insurers charge you interest for the privilege of paying as you go, instead of in one upfront lump sum — and the rates can be higher than a credit card.

The average annual percentage rate (APR) is 22.33 per cent on car insurance and 19.83 per cent on home insurance, according to the consumer group Which?. Some insurers charge as much as 45 per cent.

Martyn James, a consumer rights campaigner, said: “Some insurers’ rates of interest are more associated with short-term, high-interest lenders or credit cards that are aimed at people with poor credit. It’s a charge for nothing, ultimately. It is — and always has been — deeply unfair.”

Which? compared car insurance quotes for a 40-year-old driver from south London with a Vauxhall Corsa. The insurer IGo4 quoted £997 if the driver paid upfront, but £1,158 if they paid monthly — an extra £161. Its APR of 45.1 per cent was the highest of the 11 companies that Which? compared quotes for.

Swinton had the second highest APR at 33.8 per cent. Paying upfront would cost the same driver £979, but £1,090 if they paid monthly — £111 more. Dial Direct charged an APR of 29.9 per cent. Paying upfront would cost £1,467, rising £179 to £1,646 for those paying monthly. The Green Insurer charged 26.6 per cent.

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Which? asked 49 car insurers about their interest rates and of the 33 who responded only 2 did not charge interest. It also asked 48 home insurers and of the 35 who responded 19 did not charge interest.

Of those, Co-op Insurance had the highest APR for car and home insurance at 29.89 per cent. The AA, Hastings Direct, InsurePink and People’s Choice all charged 26.9 per cent for car insurance, the second highest rate.

The AA and Hastings Direct also charge 26.9 per cent for home insurance while 1st Central charges 25 per cent and Tesco 23.5 per cent.

Rocio Concha from Which? said: “Many customers who pay for home or car insurance monthly don’t do so out of choice but financial necessity. That these same customers can end up paying over the odds compared to those who pay for cover annually is blatantly unfair.”

Which is urging the Financial Conduct Authority, the City regulator, to take action.

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An FCA spokesperson said: “Premium finance is an important product, relied on by many people to pay for the insurance cover they need. But firms need to assure themselves, and be able to assure us, that any product they sell provides fair value.”

Roughly 50 per cent of adults pay monthly for their car insurance, according to the FCA, rising to 60 per cent for home insurance. Spreading the cost over a year makes it more manageable, particularly since the price of insurance has soared. Insurers have blamed inflation, the rising costs of parts and labour and supply chain issues for the increases.

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From April to June the average annual car insurance premium was £622, according to the Association for British Insurers, up 21 per cent on the same period in 2023. The average for buildings and contents was £396, up 20 per cent. But many people may not realise there is an added cost if they do not pay for their policy upfront. Industry experts say there is no justification for charging customers extra if they opt to pay in instalments.

One argument for doing so is that insurers are taking on the risk of customers missing a payment. But James said they mitigate this by cancelling a policy if a payment is missed.

The Association of British Insurers, a trade body, said: “Our members understand how important access to appropriate insurance is for their customers and are very aware of the financial pressures households are currently under.”

Not all insurers charge interest to customers who pay monthly. The Which? analysis found that NFU Mutual and Hiscox had no APR on car insurance while 19 home insurers (including Halifax, John Lewis, MBNA and M&S Bank) did not charge interest for spreading payments.

Use a comparison site to ensure that you are getting the best deal. Don’t just consider price — look at the specifics of the policy, such as whether it offers breakdown cover as standard and how much the excess is, and consider customer reviews.

If you cannot afford to pay upfront, it could be cheaper to use a credit card to pay for your policy and then pay the balance off in instalments instead. A 0 per cent credit card, which charges no interest for a set period, would be the best option if you are eligible.

The best deals are from Barclaycard, which offers a 21 month 0 per cent purchase term, and NatWest, which offers 19 months at 0 per cent, according to Moneyfacts.

Other ways to reduce your premiums include opting for a higher voluntary excess, which is the amount you agree to pay in the event of a claim. However, make sure this is not so high that you can’t afford it if you do need to make a claim.

Some occupations are considered riskier to insure than others. Simply tweaking your job title can help to lower the premium, but it must still be accurate. For example, if you paid £1,000 for your policy and put your job title down as “journalist”, listing it as “editorial staff” instead could reduce the cost to £792, according to MoneySavingExpert. Use its online tool to see how much you could save by tweaking your job title.

Where you park your car also affects your premium. If you can use a drive or garage overnight instead of parking on the road it could lower the cost.

iGO4, Swinton, Zenith and Nutshell are owned by Markerstudy Group, which also owns Co-op Insurance’s underwriting business. A Markerstudy spokesperson said: “Offering choice to our customers is important to us and that includes providing the option to pay monthly for their insurance. As we strive to deliver good customer outcomes, we are working to reduce our APRs across a number of our brands.”

A spokesperson for Co-op Insurance said: “Having reviewed the rates of credit set by our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance over the past few months, and we are continuing to review this.”