Standard rules for personal borrowing will be introduced across the 27-nation European Union following a landmark agreement yesterday aimed at making it simpler for consumers to shop around for credit.

Lenders will have to provide information about the terms of loans in a common format and calculate the annual percentage rate (APR) following the same method under the Consumer Credit Directive agreed by the European Parliament.

Borrowers will get the right to withdraw from a contract penalty-free if they find a better offer elsewhere in the EU within 14 days and they will also be granted the same conditions for early repayment.

The rules, which will apply to all unsecured personal loans between €200 and €75,000, have been agreed after six years of wrangling and are likely to force down rates in some countries as people begin to look for credit across borders.

Two out of three EU citizens use consumer lending for major purchases but just 1 per cent get it from another country, with most of them living in border regions.

Lenders and consumer groups in Britain, where consumers are the most indebted in Europe, said that people had so far shown little appetite for shopping around overseas because of language and currency barriers. Nor will the EU directive, due to come into force in 2010, stamp out variations in APR calculations left by the Consumer Credit Act 2006 caused by irregular credit card payments.

Lenders also warned that a new limit on the penalty for early repayment of 1 per cent of the remaining value of the loan, which will benefit some consumers, could lead to extra costs that are passed onto poorer customers who pay over the full term. At present, the penalty limit set by the 2006 Act is based on 28 days plus interest from the remaining days during the month of repayment.

The EU directive does contain provision for lenders to apply to national authorities to charge above the 1 per cent limit for compensation if they can prove that the costs involved in an early repayment mean they would be losing out.

The German Banking Association said the new rules "comprise many new formalities and bureaucratic obstacles which will hinder the supply of consumer credit in future". The European Federation of Building Societies said that consumers would face "information overload".

Interest rates on loans can vary from 6 per cent in Finland to 12 per cent in Portugal, the Commission said, even though both countries are in the euro zone where the European Central Bank sets a single basic interest rate.

"The new rules will make the market more transparent for consumers and business competitors," EU Consumer Commissioner Meglena Kuneva said.

"The main effect will be to provide standard, comparable information to customers across the EU taking out a credit loan," she added.

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