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In AB, what should I know about prepayment penalty for car loans?
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Car Loan Glossary • ab

In AB, what should I know about prepayment penalty for car loans?

In Alberta, your ability to prepay a car loan without penalty hinges on whether your financing is structured as an 'open' or 'closed' loan. Open loans, while less common for vehicle financing, generally permit lump-sum payments or full repayment at any time without incurring additional fees, offering consumers maximum flexibility. Conversely, most car loans are 'closed,' meaning they have a fixed term and interest rate, and early repayment *can* trigger a prepayment penalty. These penalties, often calculated as a certain number of months' interest or a fixed administrative fee, compensate the lender for the interest income lost due to the early payoff. While Alberta's consumer protection legislation aims for fair practices, it does not universally prohibit these penalties for secured, fixed-term loans like car financing. This matters significantly because prepayment penalties can diminish or even negate the financial benefits of paying off your loan early, such as saving on interest, especially relevant in a dynamic market like 2025 where interest rate changes might make early repayment attractive. Always meticulously review your specific loan contract or contact your lender directly to understand their exact prepayment terms and any associated costs before making a decision.

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Related Topics: ab province topic

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