The loans are part of Chrysler's 2009 bankruptcy restructuring when a sudden drop in auto sales, resulting from the collapse of the credit markets, pushed the Auburn Hills, Mich., automaker to the brink of collapse. The company, bailed out by government loans and the United Auto Workers union, is now operated by Italian automaker Fiat SpA.
Chrysler, according to executives familiar with the plan, will use $3.5 billion in bonds, a $2.5 billion loan and about $1.3 billion in cash from Fiat to repay the government loans to the U.S. and Canada.
Chrysler will detail the terms of plan, which will result in the auto company paying back the government loans years ahead of schedule, on Thursday when the bond offering is priced.
In late April, the company announced it would repay the government loans by the end of June.
Repaying the government loans will be a significant step in Chrysler's comeback. The move will lower the company's costs by exchanging the government debt for private-sector debt that carries lower interest rates.
And it has political benefits, too: As the 2012 election season cracks up, many politicians, mostly Republican, are rehashing the controversial move to bail out the automakers.
Under Fiat's leadership, Chrysler has overhauled its vehicle lineup and cut costs. So far the automaker has updated 16 models, and collaboration between the two companies will move the company away from its traditionally truck and SUV heavy lineup.
Fiat has also used the Chrysler alliance to re-launch the Fiat brand in the U.S. this year after a 27-year hiatus.
Separately, Chrysler this week obtained preliminary approvals from a federal patent examiner in its bid to trademark "Imported from Detroit," the ad slogan of the marketing campaign it kicked off in last February's Super Bowl.