Consumer credit: the CJEU bars charging interest on financed insurance and credit costs

Many consumer loans do not finance only the money the customer receives: they add to the principal an insurance premium or other costs linked to the transaction, and apply the loan’s interest rate to that larger figure. The Court of Justice of the European Union has just put a stop to that practice. It is worth understanding what the Court decided and what borrowers with this type of loan can claim.

How a consumer loan gets more expensive

In consumer lending it is common for the lender to roll into the financed amount the cost of an insurance policy — life cover, payment protection — or other charges connected with the credit. The problem arises when that sum, which never materially reaches the consumer’s pocket, is folded into the principal and accrues interest as if it were money lent. The result is that the customer pays interest not only on the money received, but also on the cost of an ancillary product.

What the Court of Justice ruled

In its judgment of 23 April 2026, in case C-744/24, the Court of Justice of the European Union interpreted Directive 2008/48/EC on credit agreements for consumers and laid down a clear criterion. The concepts of total amount of credit and total cost of the credit to the consumer are, the Court held, mutually exclusive: the total amount of credit cannot include sums intended to satisfy ancillary commitments — such as insurance premiums — that are not actually made available to the consumer. And since the borrowing rate — the loan’s interest — applies to the amount of credit drawn down, the sums the lender allocates to paying those costs fall outside its base. Put directly: the bank cannot charge interest on the insurance premium or on other financed costs it never handed over to the customer.

An important nuance: passing on the cost is not prohibited

The judgment does not prevent the lender from passing the cost of the insurance or associated charges on to the consumer. What it prevents is doing so by applying the loan’s interest rate to those amounts. The lender may recover the cost by other means — for instance, through a proportionally higher interest rate — so the issue shifts to transparency and to accurate information on the Annual Percentage Rate of charge. The consumer must be able to know the real cost of the transaction; what is not acceptable is disguising that cost as interest on capital that was never received.

What the consumer can claim

Anyone who has, or has had, a consumer loan in which an insurance premium or other costs were financed and interest was charged on them should consider reviewing the agreement. If interest was calculated on sums never made available to the borrower, repayment of the excess charged under that head can be claimed. As with any claim of this kind, analysing the agreement, the amortisation schedule and the pre-contractual information is what allows the overpayment to be quantified.

How we help you with your consumer loan at RCM Legal

Two situations come up frequently: the borrower who took out a consumer loan with financed insurance and does not know they may be paying interest on an amount they never received, and the borrower who suspects the real cost of the credit was not disclosed transparently. The difficulty lies in reading the agreement and the APR calculation correctly to establish which part of the interest is recoverable.

At RCM Legal we review consumer credit agreements, calculate what you can recover for interest charged on financed insurance and costs, and claim its repayment. As lawyers specialising in banking and consumer law in Murcia, if you have a consumer loan with insurance rolled in, send us your agreement and we will tell you what you can claim.