Deciding to settle a loan early should become cheaper under proposals announced by the Department of Trade and Industry (DTI).

Companies often penalise borrowers who decide they want to pay up to end their agreement.

Lenders sometimes use a complicated formula, called Rule of 78, for calculating the fee.

The DTI believes this is unfair and wants it replaced with a more accurate formula.

The change could save the average consumer about £50 on their loan.

About 70 per cent of all personal loans are settled early and the trend is increasing.

The new rules will not apply to most credit cards and mortgage loans.

Announcing the proposals, consumer minister Melanie Johnson said: "The formula used by many lenders to determine how much is owed in settlement favours the lender as opposed to the consumer. This is particularly true for long-term, high value loans. I am launching a consultation on this issue to explore options for making the early settlement terms fair to both lenders and borrowers."

The changes would also benefit borrowers who want to pay off their loan and switch to a better deal and consumers who default on a loan and receive a demand to settle their debt.

The start of the consultation process coincided with the anniversary of the launch of the Government's review of consumer credit law.

More than four in ten of
parents or grandparents who save money for their children or grandchildren do so to pay for their school or university fees, according to MORI research commissioned by Edinburgh Fund Managers.

The average annual cost of sending a child to an independent day school is now almost £8,000.