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

In Prince Edward Island, as across Canada, the ability to prepay a car loan without penalty largely depends on whether your loan is 'open' or 'closed.' The vast majority of car loans, particularly those from dealerships or captive finance companies, are structured as closed-end agreements. For these closed loans, prepayment penalties are common and legally enforceable, provided they are clearly outlined and disclosed in your original loan contract. Unlike mortgages, there isn't a federal cap on these penalties for car loans. While PE's Consumer Protection Act ensures transparent disclosure of all credit terms, including any prepayment charges, it generally does not dictate the penalty amount itself. These penalties are typically calculated based on a formula specified in your agreement, often involving a percentage of the outstanding balance or a fixed number of months' interest. In the current economic climate approaching 2025, with potential interest rate fluctuations, understanding these clauses is paramount. Why this matters: Knowing your contract's specifics directly impacts your financial flexibility, allowing you to accurately assess the true cost of refinancing, selling your vehicle, or paying it off early, potentially saving you significant unexpected fees. Always consult your specific loan agreement for precise details.