How to Understand the Truth-In-Lending Disclosure Statement

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The truth-in-lending disclosure is a federal law that requires lenders and financial institutions to make a full disclosure to consumers regarding the various fees, charges, terms and conditions of a contract. Some information must be set apart in bold print so that a consumer’s attention is alerted to the information. This act stops credit card companies from mailing out credit cards to customers who did not apply for them, according to Bankruptcy-Law Free Advice.com. To understand the truth-in-lending disclosure, you must read each section and analyze the information.

Analyze the document from beginning to end. The truth-in-lending disclosure is quite lengthy. To truly understand it may require that you read the entire document over a period of several days. Write down any questions you may have for a lender or other financial institution. Make sure you get a thorough explanation.

Determine some of the more common information included in the truth-in-lending disclosure. The truth-in-lending disclosure requires creditors to provide consumers with information regarding the total amount of a loan that is financed, the interest rate, annual percentage rate, (APR), fees, finance charges, total amount of the loan, payment schedule and prepayment penalties.

Compare the APR to the interest rate. Take a look at the interest rate and the APR. The APR is the cost of borrowing money expressed as a percent. The APR will be higher than the interest rate because it takes into effect any some fees that have to be paid by consumers. The interest rate is the cost borrowers are charged by lenders to borrow money. An APR of 7.2 compared to 8.2 usually means there are more fees associated with the higher APR, according to MS Money.

Find out how much the total amount of the loan is. The total amount of a loan is the principal amount borrowed plus the finance charges, fees and interest that have to be paid. If you know the monthly payment and the number of payments, you can calculate the total amount of a loan by multiplying. For example, if your monthly payments are $350 and your loan is 10 years, the total amount will be $42,000, ($350 x 120 months).

Locate the amount financed for a loan. This is the principal amount you are borrowing before finance charges and fees have been applied.

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