Personal Finance

Penalty for paying off 0% auto loan?

  • Last Updated:
  • Aug 21st, 2018 12:39 pm
[OP]
Newbie
Nov 12, 2008
67 posts
14 upvotes
Kelowna

Penalty for paying off 0% auto loan?

I want to pay off a 0% auto loan to free up TDS/GDS to buy a home, but they (big Canadian bank) appear to charge $30.74 to pay off the loan. Is this normal? What's the reason? Wouldn't they want their money back sooner rather than continue to lend money for free?

I also wonder if, to get around it, I should prepay everything minus one payment since it seems there's no penalty for prepaying except to prepay the whole thing, then let the last payment come through as usual?

TIA
15 replies
Deal Addict
Apr 5, 2016
3053 posts
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Calgary/Vancouver
You can most likely get that waived. Might be a discharge fee for removing the lein on the vehicle.
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Deal Addict
Nov 13, 2013
1494 posts
577 upvotes
Ottawa
Why pay off a 0% loan? Put the money in a HISA and set up automatic transfers. At the end you have a couple of hundred dollars for free.
Jr. Member
Apr 19, 2017
197 posts
71 upvotes
Yea, NEVER pay a 0% loan. You already lost (if any) any cash incentives, so might as well enjoy the 0% interest money.
Deal Fanatic
Apr 16, 2007
7052 posts
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Financial District B…
DKaz wrote:
Jun 6th, 2018 11:21 pm
I want to pay off a 0% auto loan to free up TDS/GDS to buy a home, but they (big Canadian bank) appear to charge $30.74 to pay off the loan. Is this normal? What's the reason? Wouldn't they want their money back sooner rather than continue to lend money for free?

I also wonder if, to get around it, I should prepay everything minus one payment since it seems there's no penalty for prepaying except to prepay the whole thing, then let the last payment come through as usual?

TIA
Which big Canadian bank gave out 0% ?
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Sr. Member
Feb 21, 2010
729 posts
174 upvotes
Scarborough
30$ is the discharge fee to clear the title of vehicle, I recently paid to RBC and Bank did not waive it
Deal Addict
Jul 27, 2017
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GTA
DKaz wrote:
Jun 6th, 2018 11:21 pm
I want to pay off a 0% auto loan to free up TDS/GDS to buy a home, but they (big Canadian bank) appear to charge $30.74 to pay off the loan. Is this normal? What's the reason? Wouldn't they want their money back sooner rather than continue to lend money for free?

I also wonder if, to get around it, I should prepay everything minus one payment since it seems there's no penalty for prepaying except to prepay the whole thing, then let the last payment come through as usual?
read the fine print in your contract
Deal Fanatic
Nov 24, 2013
5282 posts
1879 upvotes
Kingston, ON
mikeymike1 wrote:
Jun 7th, 2018 5:01 am
Which big Canadian bank gave out 0% ?
The "0%" rate is a manufacturer's promotion, but the loans are administered by by big banks. My 0% Mazda loans were administered by Scotia, and yes, I did have a small ~$20-$30 fee when paying off early. I forget the wording on it, but it's essentially a charge for deregistering the lien.
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May 8, 2009
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Weird, this is new to me. My auto loan wasn't 0% and I did pay it off early, but there was no penalty in doing so.

Was paying 4% so I looped an MBNA PP card to pay off the last year of it.
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[OP]
Newbie
Nov 12, 2008
67 posts
14 upvotes
Kelowna
Yep it's a Mazda loan through Scotiabank. Ah didn't realize there was a lien deregistration fee, is that only for early payoffs or is it charged regardless?

As said, I'm trying to maximize my TDS and GDS. But I am considering my options. I'm sitting down with my mortgage broker next week to see what's the best course of action. I do only have 12 months remaining in the loan so it's not a huge amount and is easy to pay off, but it will help get the house that is best for my family. There were no cash incentives at the time of purchase.

I might try to see if there's an option to pay off half the loan and half the remaining payments. Likely not but worth a shot.

Thanks all.
Deal Fanatic
Nov 2, 2013
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Edmonton, AB
DKaz wrote:
Jun 7th, 2018 11:51 am

I might try to see if there's an option to pay off half the loan and half the remaining payments.
They'll let you pay off half the loan, but not re-finance/re-structure the loan to produce lower payments (which the mortgage lender wants).
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[OP]
Newbie
Nov 12, 2008
67 posts
14 upvotes
Kelowna
Thanks all, I paid off the loan in full and we got our dream home.
Member
Jun 23, 2010
265 posts
132 upvotes
North York
plans4canada wrote:
Jun 7th, 2018 2:28 am
Yea, NEVER pay a 0% loan. You already lost (if any) any cash incentives, so might as well enjoy the 0% interest money.
The calculations in a getting a new loan work in weird ways. Paying off $1000 in the remaining balance of a car loan could provide significantly more than $1000 in another loan.
Deal Addict
Apr 5, 2016
3053 posts
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Calgary/Vancouver
The dreaded TDSR calculations. I also know someone in the same situation where they could not get an exception for $3000 remaining on a car loan with payment of $650. Yet have no issue with a student loan of $30k but payments of $100-200. Could be a bad lender that sucks at mitigating.
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Newbie
Mar 12, 2008
27 posts
4 upvotes
Toronto/Markham
It's not only the amount owing
It's the monthly debt obligations.

A bank would look at the over all risk and cashflow...so a 100-200 payment is more favorable than 650 as it would have a lower impact in monthly cashflow... But if the individual had a large amount of outstanding debit, even at low monthly payments it would impact getting a MTG approved as the over all debit load and risk may be deemed too high.

Tds/gds calculations are based on what banks as lenders are required to follow based on ruled placed by banking regulators. If you go to B/C/Private lenders they do not have to follow the regulators rules to approve deals as they are not subject to the same restrictions


And to the op..... That fee is not a penilty, but rather a discharge fee to remove the lien in the car

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