Question

Explain the intent of the Truth in Lending Act. What is the difference between the finance charge and the APR?  

Answer 1

The Truth-in-Lending Act intends to ensure a significant revealing of credit terms so that the customer will be capable of linking more readily the different credit terms possible and evading the unaware usage of credit.

It requires lenders to notify borrowers of the original cost of getting a loan.
The necessary disclosures are a) the finance charge b) the APR c) the amount financed d) the entire payments.

The Truth in Lending Act designed to assure that credit terms are published in a significant way so customers can relate credit terms more quickly and knowledgeably.
All creditors must use the relevant credit jargon and expressions of rates.

Finance charge

A finance charge is a fee imposed for the usage of credit or the addition of existing credit. It may be a flat charge or a portion of borrowings, with share-based finance charges. A finance charge is usually a combined cost, including the cost of providing the debt itself and any associated transaction charges, account maintenance charges, or late charges imposed by the lender.

Finance charges cover all charges connected with the loan, including interest and commitment charges.

Annual Percentage Rate(APR)

The APR includes both the interest charged on loan and all charges and other expenses associated with getting the loan. These charges can involve broker charges, closing charges, discounts.
The APR is more precise of total borrowing cost because it reflects other expenses incorporated with obtaining a loan, especially a mortgage. When concluding which loan provider to get money from, paying attention to the APR is a good sign.
These four items used to calculate APR are loan amount, loan term, closing costs, and the note rate.

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