Drivers who pay for car insurance monthly can end up paying hundreds of pounds more than those who pay a year at a time – suggests the latest research into rocketing prices.

The cost of car insurance is soaring – with drivers now being charged on average £251 more for an annual policy than they were a year ago.

But an investigation by consumer group Which? has found that those who opt to spread their payments over 12 months could also find they’re charged as much as £300 more for their policy.

Researchers used sales data from website GoCompare to find the average price differences separating annual and monthly customers between December 2018 and September 2023.

In September 2023, monthly payers using GoCompare paid £892 on average for a year’s cover, while annual payers paid £583 - a cash difference of £309.

In December 2018, the gap was £100 less when customers paying the entire amount were charged £460 on average compared to £667 for those making monthly payments.

It is not unusual, says the consumer group, for those wanting to spread the cost being charged interest rates of more than 30%.

Young drivers are also thought to be disproportionately affected because – while they often have the highest premiums they’re also not always as financially stable – which makes them more likely to want to pay each month.

It is estimated around a third of all insurance customers choose to pay for cover each month but that this rises to more than half of consumers when it comes to car cover.

Which? is now calling on the Financial Conduct Authority to act. It wants it to name and shame those with the highest interest rates, investigate how much it costs to provide credit for premiums and take action against companies charging ‘excessive rates’.

Rocio Concha, Which? Director of Policy and Advocacy, said: “Car insurance is a legal requirement for motorists - and yet those who can’t afford to pay in one go annually are often being penalised through unjustifiably high interest rates on their monthly repayments.

“That isn’t right - and it’s now up to the financial regulator to outline an action plan to tackle the unfair costs of paying monthly for insurance.”