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March 18, 2013


Applying for Credit

How does knowing the Annual Percentage Rate help?

Under TILA, before you sign an installment contract, creditors must show you, among other information, the amount being financed, the monthly payment, the number of monthly payments and—very important—the annual percentage rate (APR). The APR is an annual rate that relates the total finance charge to (l) the amount of credit that you receive and (2) the length of time you have to repay it. Think of the APR as a price per pound, like 20 cents per pound for potatoes. You may buy five pounds for one dollar or ten pounds for two dollars. In either case the rate is 20 cents per pound. However, the total cost in dollars depends on the amount of potatoes you buy. When you buy credit instead of potatoes, you buy a certain amount of credit for a given number of months. The total dollar amount of your finance charge will depend upon how many dollars worth of credit you obtain initially and how many months you use those dollars.

The TILA also regulates credit advertising, which makes it easy to credit shop. For example, if an automobile ad emphasizes the low monthly payment (giving a dollar figure), it also must tell you other pertinent information, like the APR.

Of course, the APR can help you in shopping for a credit card and other forms of open-end credit.

>>What is the Truth in Lending Act?
>>How does knowing the Annual Percentage Rate help?
>>What other laws protect consumers?
>>When I apply for credit, may a credit grantor ask my age?
>>Does my gender or marital status affect whether I am worthy of credit?
>>May married people open credit accounts that are not also in their spouses' names?
>>If my marital status changes, may a credit grantor force me to reapply for credit?

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