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

In Newfoundland and Labrador, the presence and calculation of car loan prepayment penalties are primarily determined by whether your loan is classified as 'open' or 'closed'. Open loans generally permit lump-sum payments or full early repayment without penalty, offering consumers the flexibility to save on total interest paid. Conversely, closed loans, which typically feature a fixed interest rate and payment schedule, often include clauses for prepayment penalties. These fees are designed to compensate the lender for the anticipated interest income lost when a borrower pays off the loan ahead of schedule.

While there isn't a specific federal cap on car loan prepayment penalties across Canada, provincial consumer protection legislation, including Newfoundland and Labrador's Consumer Protection Act, requires lenders to clearly disclose all terms, including any potential penalties, within your loan agreement. This transparency is vital, especially in 2025, as consumers may be looking to reduce debt or refinance, and a significant penalty could outweigh the benefits of early repayment. Therefore, it is imperative to thoroughly review your original loan contract and, if necessary, contact your lender to understand the exact terms, how any penalty is calculated, and whether it applies to partial payments or only full early settlement, before making any financial decisions.