What is premium finance?
Facts last reviewed 6 October 2026
Premium finance is the loan behind paying for insurance monthly. A finance provider, which may be the insurer, a company in its group or a specialist lender, pays the insurer the whole annual premium, and you repay the provider in instalments with interest and sometimes fees. 47%1 of UK car insurance policies were bought this way in 2023, and the interest on them typically runs at 8% to 15%2 of the amount borrowed.
How it works
When you tick pay monthly, two contracts are created instead of one. The first is the insurance policy. The second is a consumer credit agreement with a premium finance provider, which lends you the annual premium, pays it to the insurer on day one, and collects it back from you by direct debit across the year. The insurer is paid in full immediately. The debt is yours.
Because it is a loan, it works like one. There is an interest rate, there may be an arrangement fee, there are usually charges for a missed payment, and if the policy is cancelled part way through the year the loan still has to be settled, which can leave you owing money on cover you no longer have.
What it costs
The FCA's premium finance market study found that headline rates for premium finance were typically 20% to 30%3, and that where interest was charged it typically added 8% to 15%2 to the amount borrowed. Across car insurance alone the market earned £872 million4 from it in 2023, from about 15 million5 policies. On policies sold through comparison sites the charge typically ran at 4% to 13%6.
The FCA's final report on premium finance, published in early 2026, found that the cost had fallen since the Consumer Duty came into force, with customers saving about £157 million7 a year across the market, and that the average charge on car insurance was about 12%8 of the premium. It decided against capping the charge or requiring interest-free terms.
Interest-free premium finance
Some providers spread the premium with nothing added, treating the instalment plan as part of the product rather than as a separate loan. It is common on home insurance and rare on car insurance: in 2023, over a third9 of home policies paid monthly were interest free, against less than 3%10 of car insurance policies. Where an interest-free plan is offered, check that the annual price has not been raised to pay for it and that there are no fees behind it.
Who pays for it
Mostly people who have no choice. 60%11 of car insurance customers who paid monthly said they did so because they could not afford a single upfront payment. So premium finance is paid for, disproportionately, by the people least able to pay for it, which is why the regulator has kept it under review and why the cost is worth understanding before you agree to it.
Where InsPay fits
InsPay is being built to take the cost of paying monthly out of car insurance without asking you to find the annual premium yourself. A lending partner pays your insurer in full on day one. You repay that same amount in instalments, with nothing added for spreading it. What you pay for is the InsPay product, and its cost is shown in full before you agree to anything.
The second half is the excess. Your policy moves to a £1,000 combined excess, which lowers what the insurer charges for the same cover, and the InsPay product includes insurance that pays that excess when you claim. So the lower premium is real and the excess never reaches you.
InsPay is not the lender and not the insurer. The credit agreement is between you and the lending partner, your motor policy stays with your insurer, and the excess cover is provided by an insurer. InsPay arranges the payment and provides the product that holds it together.