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on 5/2/16We prepaid and it was charged to our credit card immediately. You can cancel without penalty but the problem for us was that we booked through an American website (unknowingly) and when we realized what had happened we cancelled but because of the USD/CD exchange rate we were out almost $60.00 (in one day I might add). So yes, it is free to cancel and yes you are prepaying. We got a much better rate by phoning the hotel directly and booking that way. When we arrived they gave us a $60 credit against our four night stay when we explained what had happened. We didn't have to prepay either. I probably wouldn't use Trivago again. I would just book directly.