Borrowers who paid their debts off early were charged a total of £332 million extra for the privilege last year.

Four out of five loan providers charge borrowers penalties if they pay off their loans before the end of their terms, according to internet bank Egg.

The group said that of the 61 providers offering unsecured personal loans which it examined, 48 charged some form of penalty, usually one or two months' interest.

Only a handful of mortgage providers made no charge for early redemption.

It added that around 70 per cent of consumers paid loans off early and three-quarters said they would pay a loan off if they unexpectedly got some extra money.

But 65 per cent of consumers said they would be put off doing this or moving their loan to a cheaper provider if they would be hit by an early redemption penalty.

The survey also showed the majority of borrowers did not know they could be penalised for paying off a loan early.

Only 20 per cent thought their loan had an early redemption penalty, whereas 79 per cent of loans have such penalties.

The group is calling on the Department of Trade and Industry to abolish the charges as part of its reform of the consumer credit market.

Monday June 23, 2003